Milling & Baking News - June 6, 2006 - 17

B U S I N E S S

contracts versus 218,420
contracts a year ago.
"Large fund positions
must be liquidated or
rolled," Mr. Christopher
$5.50
said. "To date, they have
elected to roll their posi$4.95
tions forward."
Mr. Freed added, "If the
$4.40
stock market all of a sudden takes off, some index
$3.85
funds might look elsewhere
to invest their money."
$3.30
Commodity
futures
have been volatile, with
$2.75
wide swings triggered
June
even by little things. At
2004
the same time, commodity index funds have performed well compared with other investments. Unless that changes, they'll
be large factors in the wheat market.
Mr. Freed said end users shouldn't
lock in futures prices at current levels.
"They have to wait," he said. "Throw the
dice. Hope for rain in Canada. And hope
the funds don't bully markets too badly."
Matthew T. Hall, a spokesman for

a loaf of bread. Wheat is a
large one, but so are labor
costs and energy. You need
(K.C. versus Minneapolis)
to look at costs across the
$ per bu
spectrum. At any point,
some prices are going up,
some are going down. But
Kansas City
right now, with energy and
Minneapolis
wheat, we are looking at
significant price pressure
in the baking industry."
Rather than waiting for
price spikes such as the
current one, Mr. Hall said
Sara Lee constantly works
to improve efficiency and
Jan.
June
Jan.
upgrade its product mix
2005
2006
toward
differentiated
Sara Lee Bakery Group, Chicago, noted
products.
surging prices have jolted bakers, cost"Whether wheat is at $5 a bu or at
ing companies large sums of money.
$3, we need to take these actions," he
"We haven't seen wheat prices like said. "By doing so, you put yourself
this for 10 years," Mr. Hall said. "Our in a position to adapt and mitigate the
new fiscal year starts next month, so impact of costs spikes."
we're looking at tens of millions of
Prices of baked foods have moved
dollars of cost inflation. But as a com- higher in reaction to advancing costs,
pany, we look at it in the larger context and further price hikes could be forthof the many inputs that go into baking coming, bakers have indicated. MBN

Wheat futures prices

Last run to $5 followed consecutive poor harvests
KANSAS CITY - The last time Kansas City wheat futures prices topped $5 a bu was in April 1997, when markets reacted to a perceived threat to the new hard red
winter wheat crop coming on the heels of poor harvests
in 1995 and 1996.
The 1996 hard red winter wheat harvest, at 759 million
bus, was the smallest since 711 million bus in 1989 and
compared with 956 million bus as the preceding 10-year
(1986-95) average. The hard winter crop harvested the
year before also had been small, 825 million bus, so the
market already was grappling with historically tight hard
winter wheat stocks (1996-97 hard winter ending stocks
totaled 143 million bus, the lowest in decades) as it nervously watched 1997 hard winter wheat crop progress.
Kansas City wheat futures prices climbed to more
than $7 per bu in April 1996 as hard winter wheat production prospects for that year dimmed. Prices began to
drop from the highs as foreign buyers turned to nonU.S. suppliers of hard wheat, spring wheat growers
increased acreage to take advantage of high prices and
the hard winter wheat harvest began. Prices dipped below $5 a bu in late July 1996, when expectations for a
strong spring wheat harvest pressured prices. In fact,
hard red spring wheat production in 1996 was 631 million bus, up 156 million bus, or 33%, from 1995. The increased spring wheat production enabled some domestic and export demand to shift to hard spring wheat from
hard winter wheat.
Even in the face of lower hard winter wheat plantings
for harvest in 1997 than in 1996, Kansas City futures
prices continued to trend lower in the fall and winter
of 1996-97, to about $4 a bu by the end of March 1997.
But prices surged above $5 a bu during April, as the

18 / Milling & Baking News, June 6, 2006

market worried about the effect of an early-April freeze
in the Southwest.
There initially was speculation that considerable damage had been done to the hard winter crop, with southwest Kansas production losses forecast by some crop observers at 40% to 60% and south central Kansas at 30% to
50%. The Oklahoma harvest was expected to be reduced
50% to 70%.
Those dire scenarios certainly weren't realized. On
the contrary, the Kansas crop rebounded to set what was
then a yield record of 46 bus per acre, with production
more than 501 million bus. Hard winter wheat production overall that year totaled 1,098 million bus, the highest since 1990. Kansas City wheat futures prices dropped
below $4 a bu in May 1997 with the approach of harvest
and remained below $4 a bu until 2002.
Kansas City wheat futures prices came within 15c
of $5 a bu in October 2002 (Minneapolis wheat futures
traded just above $5 a bu that month). Again, a small
hard winter crop that required rationing of supplies
was principally responsible for the strong market. The
hard winter wheat crop in 2002 was 620 million bus, the
smallest since 1963. The hard spring wheat crop also disappointed, with production at 351 million bus, down 124
million bus from 2001.
Preventing a further run-up in wheat futures prices
that year was a sharp drop in U.S. wheat exports in the
face of strong competition from the European Union and
the former Soviet Union. U.S. wheat exports in 2002-03
were 850 million bus, down from 962 million bus the
year before and the lowest in 30 years. The U.S. share
in world wheat trade in 2002-03 dropped to 21.3%, the
smallest in 40 years. MBN

bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - June 6, 2006

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