Commodities Watch: Wheat Powers Ahead; Lumber Continues to Slumber; Metals Still Rising (DE, MON, POT, PCL, LPX, WY, GLD, SLV)

Wheat prices show no signs of slowing down as dry weather continues to plague the winter wheat crop in Texas and Oklahoma. The May contract price is about $8/bushel and the December futures price is $9/bushel. Dry weather is a problem in the southern plains, but unseasonably wet and cold weather is a problem in the northern plains, where there is still significant snow cover. Spring planting could be delayed in the Dakotas, which could threaten yields in the fall.

The US Department of Agriculture expects US exports of wheat to total nearly 35 million tons in the crop year ending on May 31st. That’s an increase of more than 10 million tons compared with the previous year, and reflects a drop in exports from Russia of more than 18 million tons in 2009-10 to just 4 million tons this year.

Farm equipment makers like Deere & Co. (NYSE: DE), seed makers such as Monsanto Co. (NYSE: MON), fertilizer makers like Potash Corp. of Saskatchewan, Inc. (NYSE: POT), and exporters like privately held Cargill are all expected to grow sharply as a result of the global demand for wheat. As long as the weather cooperates, 2011 shapes up as a strong year for US farmers.

Lumber prices got no help from yesterday’s housing report that US housing starts rose by 7.2% in March and new building permits rose by 11.2% at the same time. The contract for May delivery has fallen by more than $100/thousand board feet since the beginning of the year, and is trading today at around $234. At the same time, pulp prices have risen by more than $100/20-metric-ton contract.

The sharp rise in lumber prices last summer came from increased demand from China and hopes for a more upbeat US housing market after the launch of the Federal Reserve’s QE2 program. Chinese demand has held up although some shipping problems have surfaced, but US housing has continued to falter and the encouraging words from the latest housing report probably indicates that any increase in housing starts can be met with existing inventory.

A third expectation for lumber — that demand would grow as Japan rebuilds — has yet to materialize. Traders probably expected the massive rebuilding to begin sooner than it has. Since late March, shares of Plum Creek Timber Co. (NYSE: PCL), Louisiana-Pacific Corp. (NYSE: LPX), and Weyerhaeuser Co. (NYSE: WY) have all lost between -5% and -16%, although all are recovering a bit today probably in response to the housing start data.

Another beneficiary of the report on US housing starts is copper. Prices for copper are up to around $4.36/pound, bolstered as well by the weak dollar and today’s report on existing home sales, which also rose. Copper is not generally used in existing homes, but the sales report does put some wind into the sails of the overall economy, and copper prices are reacting to that.

Gold prices are solidly through the $1,500/ounce barrier, trading at around $1,503/ounce early in the afternoon. Silver prices have jumped above $45/ounce, and the gold:silver price ratio is near 33. The SPDR Gold Shares ETF (NYSE: GLD) posted another 52-week high today at $146.84, and is now trading at $146.33. The iShares Silver Trust also posted a new 52-week high of $44.31, and now trades at $44.12. The weak dollar, rising oil prices, and concerns about economic recovery in the US are sending investors to the safe havens of silver and gold.

Paul Ausick