DEPENDING on the region, wheat's role as a staple crop ranges from being a grower's prime product to being an afterthought to corn and soybeans.
With wheat recently losing its traditional price premium to corn, however, the cereal crop has received much more attention lately.
Among the first outward hints of a growing interest in wheat came last year in a series of moves by CME Group to expand and bolster its wheat futures and options products and offerings.
Crowned by the acquisition of the Kansas City Board of Trade (KCBT) in December (Feedstuffs, Dec. 10, 2012), CME also began trading spread options based on the price differentials between hard red spring wheat futures listed on the Minneapolis Grain Exchange (MGEX) and soft red wheat futures on the Chicago Board of Trade (CBOT) last spring (Feedstuffs, April 2, 2012).
Some market insiders now speculate that KCBT hard red winter wheat -- once a lightly traded contract -- is poised to assert itself as the benchmark pricing tool for U.S. wheat in general.
Rice Dairy feed grain analyst Jerry Gidel said last month that because hard red wheat is the biggest wheat crop in the U.S., it makes more sense for investors to focus on that issue rather than the more heavily traded CBOT soft red winter wheat contracts. With both contracts under one roof, so to speak, customers will have much more flexibility and ease in trading spreads between the two wheat classes, as well as other grain and oilseed contracts.
Late last month, MGEX announced a collaboration with CME that led to single-click trading functionality between its hard red spring wheat futures contracts and the KCBT issues beginning March 11. The single-click function allows market participants to conveniently trade spreads among the MGEX, CBOT and KCBT wheat classes on the CME Globex trading platform.
While CME was consolidating its power in the wheat market, NYSE Euronext announced plans to shed its wheat markets as part of an effort to garner regulatory approvals for its takeover by Intercontinental Exchange (ICE). The Paris, France-based Matif exchange is home to the world's third-largest wheat futures market by volume. The European Union supplies roughly one-fifth of the world's wheat output.
As part of the $8.2 billion ICE buyout (Feedstuffs, Dec. 31, 2012), NYSE announced in mid-February that it would spin off several of its European equities and derivatives markets. According to data from the Futures Industry Assn., the volume of Matif-traded wheat grew 31% last year to 7.5 million contracts; by comparison, CME wheat volume tallied nearer 27.4 million contracts.
As corn prices remained buoyed near $7/bu. throughout the first quarter of 2013, end users increasingly looked to wheat to supply both their feed and fuel needs.
According to the March "World Agricultural Supply & Demand Estimates" report from the U.S. Department of Agriculture, feed and residual use in the U.S. has more than doubled this year, to a projected 375 million bu., from only 164 million bu. for the 2011-12 marketing year.
Globally, the trend has held as well. In 2010-11, global feed wheat use tallied roughly 116.11 million metric tons, and in 2011-12, the total jumped to 147.05 mmt. For 2012-13, the current USDA projection is for a slightly more moderate feed usage of134.31 mmt despite a 129% increase in U.S. wheat feeding.
In early March, meanwhile, signs began to surface that even ethanol refiners were turning to wheat in the face of stiff corn prices. POET, the country's second-largest ethanol producer, indicated that it was bidding for soft red wheat feedstocks for its Portland, Ind., facility; some speculated that wheat would be blended with the traditional corn feedstock in a cost-saving measure.
With so much interest in wheat, it came as little surprise to industry analysts this month when the U.N. Food & Agriculture Organization (FAO) projected a near-record wheat crop for 2013. FAO's first forecast for the 2013 wheat harvest, released March 7, projected production to be up 4.3% this year to hit 690 mmt, potentially making the second-largest crop in history.
FAO experts said the production hike is expected mostly in Europe, where producers will look to capture high prices by increasing plantings in the hope that yields recover from recent drought-dwindled levels.