I’ve had a difficult time with wheat this year.  I managed to get my wheat planted in the late fall of 2009.  That’s always a good thing because my heavy clay soils require it for rotation setting me up for corn and soybeans.  While some of my neighbors were harvesting their wheat last week, I tried mine and it was 23%.   So today, I had my first big day of harvesting wheat before Mother Nature dropped 1 inch of rain in a severe thunderstorm.

Waiting for my wheat to get ready took an interesting turn this year because of the wheat price explosion.  Over a three-week period we have seen an increase of $1.36 in SRW wheat futures with cash prices in Ontario reaching about five dollars.  It was only a few short weeks ago when the new crop cash price for wheat was $3.77 a bushel.  For Ontario producers this has been a very welcome surprise.

I say for Ontario producers because wheat pricing doesn’t necessarily work on the free market in Canada.  For instance my Western readers will be gnashing their teeth because they are required to sell their wheat to the Canadian wheat Board.  Ditto for our DTN subscribers in Quebec who have a single desk agency for wheat.  It is in Ontario where producers have a choice, hard fought for, to either sell their wheat to the Grain Farmers of Ontario or make a contract with whoever they want to.  Wheat pricing in Canada is controversial and filled with a bit of mystery.

When I am in Western Canada, I often bring up the subject of the Canadian wheat Board.  I do that because I want to know the feelings behind the people that I’m dealing with.  I also ask because it is such a foreign notion to Ontario producers that Western wheat producers don’t have the same rights and privileges to market their week as we do.  It’s almost totally political and a little bit cultural, and from my Ontario perspective I don’t see Western farmers getting the right to sell wheat like I do at any point in the near future.  The only way it will happen is if Stephen Harper and his Conservative party get a majority government.  If that happens at some point in the future, the Canadian Wheat Board will be history, as we know it.

Despite the many different ways of selling wheat in Canada, I think we all are all interested in the wheat price explosion these past three weeks.  At a certain point these price gains will filter down into Western Canada and Québec, or at least we hope so.  Clues to the price explosion certainly lie in fund buying but also in the production problems in Western Canada, Europe and Asia.

This is significant because wheat unlike corn and to some extent like soybeans is grown almost everywhere.  For instance the former states of the Soviet Union like the Ukraine and Kazakhstan grow and export wheat, where once they did not.  There is all kinds of wheat grown under intense management in Europe.  I have walked through the wheat fields of Australia.  Wheat is simply almost everywhere and usually these wheat-growing regions don’t have problems at the same time.  This time around many of them did starting with Western Canada and that is a pretty good reason why we’ve had so much upward price volatility in wheat.

DTN’s John Sanow in his Market Sense column, “I Think I Can”, called wheat the “cockroach of grains” as it is nearly impossible to kill.  He said this in the context that the death of wheat is often exaggerated.  For instance, the TASS news agency recently reported that the ongoing drought in Russia has killed over 52% of the grain seedlings in the Ulyanovsk region of Russia.  So maybe that is true or not true.  On top of this, Informa economics recently cut Kazakhstan wheat production to just 11 MMT.   What’s the truth? I dunno, those places are so far away from the Chicago SRW exchange.  However, they are just examples of the bad wheat production news which is simply adding up day-to-day.

Of course it is never that simple. Wheat pricing fundamentals remain “pretty terrible”.   The United States has over 1 billion bushels ending stocks for this crop year the highest since 1986/87.   In Ontario you can bet that basis levels will only get worse at these higher futures prices.  We learned in 2007 that end-users would not pay historical basis off high futures prices.   Of course, in Western Canada and in Quebec, producers will just have to wait and see if any of these price spikes get into their pocket.

It’s all been a big surprise and you can bet that the wheat bulls will come back down to earth someday.  The lesson to be learned from the wheat rally is despite our best analytical and technical analysis, sometimes we never know.  Or maybe that’s most of the time.  Keeping that in the back of our mind as we make our marketing decisions should always be job one.