The Wall Street Journal-20080130-Spring Wheat Shows Strength- Demand Is Solid In Spite of Prices At Record Levels

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Spring Wheat Shows Strength; Demand Is Solid In Spite of Prices At Record Levels

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Solid demand for U.S. spring wheat should continue to support Minneapolis Grain Exchange wheat futures in the near term, even though prices are already at record levels, analysts said.

Nearby MGE March spring wheat Tuesday became the first wheat contract to crack $13 per bushel at any U.S. futures exchange. The contract settled at its daily, exchange-imposed trading limit of 30 cents higher, to $13.27, after closing limit up in the previous three day sessions.

Wheat prices are sharply above corn and soybean prices. MGE March wheat is 60.75 cents above Chicago Board of Trade March soybeans and $8.26 above CBOT March corn. Soybeans, which usually command a strong premium to wheat, also are trading at historic highs.

Despite the nosebleed prices, demand for spring wheat, a class of wheat used in bread and other food products, should persist as importing countries want the grain's high protein content, analysts said. Many of the countries that buy spring wheat are high-income countries that are reluctant to compromise on quality, they said.

MGE wheat has the potential to climb as high $15 and "perhaps it could go higher than that," said Brian Henry, broker at Archer Financial Services.

"You've got to raise the price to a level where you can limit exports and limit demand," Mr. Henry said. "I'm not sure you can find that level."

More than halfway into the 2007-08 marketing year, U.S. hard red spring wheat export sales have already surpassed the Agriculture Department's estimate for the year. Strong export sales in the week ended Jan. 17, announced Friday by the USDA, pushed total business for the year above 277 million bushels, topping the government's target of 275 million bushels, Mr. Henry said.

One benefit importers have going for them is weakness in the U.S. dollar. For instance, on Jan. 23, the dollar hit a two-and-a-half-year low against the yen. The Japanese are a big buyer of U.S. spring wheat.

Prices for spring wheat -- and wheat in general -- are at these levels because of low production in many wheat-producing countries globally amid strong demand. Minneapolis prices are rising in order to attract farmers to plant land with spring wheat, which is mostly seeded in the U.S. Northern Plains.

The USDA reignited a land battle among corn, soybeans and spring wheat when it released supply/demand and production reports Jan. 11. MGE March wheat has climbed $2.9425 since the day before the reports were issued.

In other commodity markets:

COPPER: Prices were lifted by expectations for a Federal Reserve easing, strong U.S. December durable-goods orders and winter storms in China affecting electrical output and transportation, thus metals supplies. January copper gained 10.70 cents per pound to $3.2890 on the Comex division of the New York Mercantile Exchange. Most-active March copper rose 10.95 cents to $3.2990.

NATURAL GAS: Natural-gas prices settled at $7.996 a million British thermal units Tuesday, down 9.9 cents, after dropping as low as $7.89 during the day. Forecasts of warm weather led to a decline that was partially offset by gains in the crude market.