U.S. wheat prices will stay at historically high levels this year given strong global food demand but they will not top the record highs seen in 2008, a top commodities market analyst said Feb. 9.
“The trend is clearly up. I don’t think under any circumstance are we going to see anything close to what we had in 2008 in my lifetime,” veteran futures trader Dennis Gartman, editorThe Gartman Letter,said on the sidelines of the Commodity Markets Council annual meeting.
“We are not going to have $25 wheat again ever. Not ever. I think people learned from that,” said Gartman, a featured speaker at the CMC meeting, calling the price spike in Minneapolis wheat futures in summer, 2008 “a horrifying perfect storm of problematic circumstances.”
This year’s wheat rally is reminiscent of 2008. The wheat market has been on a roll, surging to a near-30-month high Feb. 9 amid hot demand for U.S. wheat coupled with weather threats to this year’s crops in the United States and China.
“The exchanges cannot let that happen again,” Gartman said, noting that the price spike in 2008 to nearly four times the previous record for wheat prices pushed many long-established grain elevators with “short” hedges near bankruptcy.
“We let it get too far,” said Gartman, who was a longtime trader and member of the Chicago Board of Trade. “A lot of very large old-guard, conservative grain elevators were this close to bankruptcy because their margins calls were so large that they were well past any of their lines of bank credit.
“I’m sure a lot of banks that extended lines of credit beyond anything that should have ever extended were all praying to God that the bank examiners didn’t show up at the bank.”
Gartman said the record rally in U.S. cotton prices – now the highest since the Civil War – presented a similar threat and he commended changes made by the ICE exchange on Feb. 3 to tighten financial requirements on investors in the spot cotton contract and prevent an unwarranted “squeeze” higher.
Such moves could have helped in the June-July 2008 wheat market, Gartman said.
“Honestly I think we were within days if not hours of enormous numbers of bankruptcies by old-guard grain people.”
How high can wheat go now? “Until it stops, but under
$25,” Gartman said. Gartman said the other
market that concerns him is corn, where the emergence of government-backed ethanol product ion has been a bonanza for farmers but he said longer term paints nothing but problems for society.
“You have a hungry world, although we are doing a very good job feeding people,” Gartman said. “There are upward margins on those prices. We need to stop the ethanol program. It’s ridiculous to put food in your gas tank.”