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Column: Wheat prices soften

Breitinger

Wheat prices dropped to the lowest price in almost three months this week, grinding down on news that global wheat output may reach a record.

The United States, Canada, Russia and Australia are all projecting better harvests this year. Together, these countries produce more than 20 percent of the global wheat crop.

Prices had been sharply higher during the previous two years because of failed crops in these nations, which experienced crippling summer droughts and harsh winter freezes. These conditions created a shortfall in the global crop, pushing prices as high as $9.50 per bushel in 2012.

But this year’s bumper crop has caused prices to drop sharply; by Friday, Chicago wheat for delivery in December was trading at only $6.38 a bushel.

Looking ahead, farmers and traders are awaiting a Tuesday USDA report that will update the outlook for grain supplies and future demand.

Hog market drops, too

Hog prices continue to drop, sliding to an eight-month low of less than 82 cents per pound on Friday. Pork prices have been dropping as market-ready hogs reach record weights, with the average animal more than 280 pounds.

Hog weights have been rising as farmers have held onto the animals longer, fattening them up on cheap corn and soybeans. Unfortunately for the farmers, hog buyers have been holding off on purchases, forcing prices lower.

Long-term, some factors loom that could push prices back up, including winter storms that could limit weight gains and the ongoing PED virus, which is fatal to piglets, potentially limiting the supply of pork next year.

Lumber hard to price

Unlike the other agricultural markets related to food production, lumber has a unique set of complex factors that affect its supply and demand, creating a fascinating challenge to predict its price.

Prices are affected by government policy, the long-term housing cycle and an annual cycle making cost control tricky for foresters, lumberyards, and builders alike.

Furthermore, disasters such as droughts, forest fires, hurricanes and floods can drastically reduce lumber supplies and increase demand as communities rebuild.

Following the housing crash, lumber prices bottomed out in 2009 at $138 per thousand board feet. Since then, exports to China, low mortgage interest rates, and our slowly improving housing market have been boosting demand, lifting prices more than $400 per thousand board feet this year.

As commonly occurs, prices have retreated recently as demand for studs diminishes during winter months, hammering prices down to $347 per thousand board feet by Friday morning.

Walt Breitinger is a commodity futures broker in Valparaiso. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.

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