Wheat prices pushed to new highs this week and broke through $7 per bushel for the first time since 1996. Since early July, wheat prices have risen more than $1 per bushel. Several factors have help push prices higher.
Domestically, spring wheat conditions in several Northern Plains states have fallen in recent weeks, as hot temperatures settled over wheat growing areas.
On Monday, the Department of Agriculture announced that 69 percent of the spring wheat crop was in good or excellent condition. While this is far above average for this time of year, it is down 16 percent from the end of June.
On Thursday, the Department of Agriculture announced that U.S. growers had agreed to export 32.7 million bushels of wheat. This was a strong reading and comes on the heels of the two previous weeks' record-strong export sales. As more wheat is sent overseas, it creates the possibility of supply shortages in the U.S. and prices tend to rise as a result.
The last factor pushing prices higher this week was continued concerns about wheat yields in foreign countries. Australia, Germany and the Ukraine have already announced weather-related problems with this year's wheat crop. On Thursday, France joined the group when it announced that it too was lowering its forecast for wheat production. This caused analysts to make further downward revisions to their estimates of wheat inventories at the end of the year and confirmed some traders' fears about possible supply shortages.
On the week, the September wheat futures contract was up 38 cents per bushel through midday Thursday, or a little more than 5 percent. Friday morning's Department of Agriculture crop report indicated the total wheat crop to be 2.114 billion bushels
OIL: After surging to new highs in the previous week, crude oil futures fell dramatically this week. After reaching a new all-time high of $78.77 per barrel in the previous week, crude oil fell back under $71 per barrel by Thursday morning.
Monday saw the largest decline with the September crude oil contract falling by more than $3 per barrel. There were presumably two major reasons for the large Monday decline. First, some analysts suggested that the Organization of Petroleum Exporting Countries may have recently increased crude oil production, though OPEC has made no statement confirming this. Nonetheless, traders took the report as bearish for prices and started selling.
At the same time, global equity markets were also struggling with the developing problems in the subprime mortgage and debt markets. It is possible that traders started to worry about the possibility of large declines in equity markets leading to slowing economic growth around the world.
If that were to occur, it could lead to lower demand for crude. Problems in the subprime debt markets are still developing and it could be weeks before the full extent of the problems are known.
Until then, both equity and energy markets are sure to be volatile.
COPPER: Through midday Thursday, copper futures had fallen $.12 per pound on the week, or about 3.5 percent, as inventory built at the London Metal Exchange and further problems in the housing sector combined to alleviate worries about supply shortages.
Additionally, many of the labor problems at several copper mines have been resolved and mining operations have resumed. As inventories build and demand from the housing sector continues to slump, it could continue to push copper prices lower.
If more labor disputes develop or large demand from China or other foreign countries is seen, it could lend support to copper prices.
Walt Breitinger is vice president of commodities at A.G. Edwards and Sons. He can be reached at (219) 738-6460.
