Weekly Market Highlights
- Wheat futures prices moved higher this week, finding support on news at home and in faraway markets.
- Egypt made a very large wheat purchase this week, and the U.S. lost it all to Russia, France and Romania. It is thought, however, that this purchase set the stage for firmer global wheat prices.
- It was hard for the market to ignore the USDA report that farmers planted the smallest number of acres since this data reporting started more than 100 years ago. In a year where the wheat in storage at home and around the world was smaller, this news could have led to sharply higher prices.
- Heavy snows through the winter months in North Dakota and Canada could lead to planting delays, possibly providing enough uncertainty to support pricing in the spring wheat market.
- Winter wheat growing concerns are numerous and varied; we expect seasonal support due to crop concerns, but the offset of large wheat stocks at home and around the world offset the momentum they could otherwise command.
Facts on Flour: Flour Pricing Components
Flour prices are influenced each day by three rather independent and potentially volatile components. The first component, wheat future prices, forms the base from which actual wheat prices are derived. Futures are standardized, tradable contracts. Parties swap pieces of paper, obligating them to make or take delivery of wheat sometime in the future.
The second component is cash basis. The basis serves to adjust the futures price to better represent the actual cost of delivering wheat to the mill. It also adjusts for the specific grades and quality the miller needs. The basis combined with the futures represent the actual price the miller pays to supply wheat to the mill. The third component is millfeed. Because just under 80 percent of the wheat kernel can become flour, the flour mill must deal with a by-product referred to as millfeed or millrun. The price that mills receive for by-products is treated as a credit against the cost of the wheat and reduces the price of the flour to customers.
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