Milling & Baking News - July 14, 2009 - 25

introduction of bioengineered wheat.
In addition to efforts by U.S. Wheat
working with customers around the
globe, a broader effort toward tolerances, a commitment to offering customers choice (conventional or bioengineered wheat) and multilateral
coordination between countries all are
important steps, he said.
"We view the object as aligning the
value chain by thoughtfully discussing key concerns of each sector to find
win-win solutions, resulting in the
successful commercialization of biotech wheat," he said.
Challenges index fund impact
While commodity index fund position changes have been positively
correlated with price changes, the evidence suggests the position changes
were not what precipitated the price
movements, said Jim Moser, deputy
chief economist at the Commodity Futures Trading Commission. Mr.
Moser discussed "Economics and
Commodities" in a June 18 presentation before the I.B.A.
"The relationship is not causal," he
said. "Position changes in commodity
index funds follow rather than lead
price changes."
Mr. Moser's presentation preceded
the release of a Senate subcommittee
report calling for tighter regulation of
wheat markets (see Milling & Baking
News of June 20, Page 1). In his talk,
Mr. Moser cited what he described as
"two major studies" as supporting the
lack of causality, including an interagency task force on crude oil.
Additionally, Mr. Moser said that
studies of recent volatility have found
increases when measured week over
week and month over month versus
2003-04, but not day
over day.
Commodity
index
funds have high levels
of open interest, rising
to 45% plus for Chicago Board of Trade
Wheat for the Septem- Moser
ber 2008 contract, the
highest of the agricultural commodities. For Kansas City wheat, the open
interest level was 24% and for corn,
22%. Mr. Moser said studies have not
demonstrated a relationship between
commodity index fund market share
and either volatility or price changes.
There has been evidence that during
the roll period (between contracts),
the index fund activity has pressured
nearby prices while lifting deferred
prices. The roll takes place seven to
bakingbusiness.com / world-grain.com

Senator Richard Lugar of Indiana, right, was the recipient of the Horst G. Denk Legislative Service Award of the Independent Bakers Association. The I.B.A. gives the award
annually to members of Congress based on their support for key issues of concern to
baking and the food industry. Presenting the award June 18 was John F. Popp, left,
outgoing I.B.A. chairman, and chairman, president and chief executive officer of Aunt
Millie's Bakeries, Inc., Fort Wayne, Ind. Also honored with the award was Senator Mark
Pryor of Arkansas.

nine business days into the month
prior to expiration.
Turning to issues of convergence,
Mr. Moser said failures may be indicative of problems with the delivery
mechanism.
"The industry is feeling around, trying to fix the problem," he said.
He noted that corn convergence
has been fine, soybeans have been
worrisome and wheat has been "a
real problem."
"The C.F.T.C. doesn't have a ready
answer," he said.
Soybean tightness nearby concern
While supplies should become
more plentiful in the fall, extraordinary tightness in old crop soybeans is a matter of concern to bakers, said Jim Hess, senior sales account manager, Horizon Milling,
Wayzata, Minn.
Mr. Hess, a regular speaker on
grain markets at I.B.A. meetings, said
that according to U.S. Department of
Agriculture data, the stocks-to-use
ratio projected for year end is a razor
thin 3.6%. For 2010, the ratio is expected to widen to 6.8%, still a modest level, he said.
When describing the wheat supply
and demand picture, the facts and figures don't necessarily add up to the
challenging markets and historically

high prices that have been prevailing,
Mr. Hess said.
"Wheat doesn't really have a 'story,'" he said.
After record production in 2008-09 a
smaller crop is anticipated in 2009-10.
But because of a reduction in exports
expected for 2009-10, wheat stocks
should be flat from this June until
next, he said. The stock-to-use ratio in
2010 should be the largest in several
years, he added.
The June stocks-to-use forecast from
the U.S. Department of Agriculture
for 2010 was 30%, up slightly from
2009 and would be up dramatically
from 13% in 2008.
Returning to the theme of "no story"
in wheat, Mr. Hess said the wheat market strength "is a story about everything
else." He noted that there is no shortage of wheat in the world, and that the
rice stocks-to-use ratio has improved,
diminishing an important source of upward pressure on wheat markets.
Reviewing sources of strength in
wheat prices, which have remained stubbornly above historical averages, Mr.
Hess said the market has been pulled upward by strength in the CRB commodity
index. This index, in turn, has been lifted
by weakness in the U.S. dollar.
"The dollar is down 11% since
March, and as of early June oil prices
were at a new recent high," he said. MBN
Milling & Baking News July 14, 2009 / 25

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Milling & Baking News - July 14, 2009

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