Allendale Inc projects 2008 World per capita consumption of Wheat at 169 pounds per person, which compares to year earlier levels of 173 pounds/person. Based on the world population this suggests the total consumption declining 443 million bushels. The cause is likely the high international prices given the tightness in world stocks and bullish enthusiasm by the investment community.
Allendale will sell the remaining balance of 2007 harvest inventory to the cash market. Our reasons are numerous, from the fact the wheat is hedged in the March futures and futures are inverted, historically odds favor the national cash average price for wheat favors the month of December and March. Given the fact margins have increased, exchanges expanded the daily trade limits, March option expiration is February 22nd, first notice day is February 29th, Allendale prefers to accept the present cash price rather than the risk. At this juncture we are not advising to re-own inventory via futures and or options.
Allendale remains bullish fundamentally to old crop futures, but does realize old crop cash grain values may ultimately become new crop value. At present our trade recommendations are to remain neutral at least through this Wednesday. We prefer to not be involved as the guinea pig until this market straightens out. Thin stocks, continued increased export demand and fewer world suppliers are all fundamentally bullish. Egypt announced after Monday's futures close they seek 105 to 145 thousand tons of wheat. However with the new expanded limits, margins increased and timing of option expiration along with first notice day, we do not advise trading old crop March futures. After Monday's futures close, the CME Group announced it would raise margins effective with the Monday electronic trade session.
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