Lower futures prices for wheat herald a shaving of input costs for bakers and millers, with the collapse of Lehman Brothers and the near-bankcruptcy of global insurer AIG arguably hitting agricultural quotations downwards.
Whether the drop in future prices is a ripple effect from tectonic events on Wall Street this week, or is simply a result of more buoyant harvest statistics, is up for debate.
"The bulk of market movement is driven by fundamentals, and for the coming season these fundamentals are generally bearish," says Mike Mendelson, an economist at the UK's Home Grown Cereals Authority.
While last year wheat stocks hit a 30 year low, creating a bulliish market on fears that buffer stocks were far from sufficient to meet global demand, and sending prices soaring, in 2008 the wheat stocks are expected to be built by about 140 million tonnes. A key element in contributing to an easing of wheat futures prices over the past month.
However, as 150-year old investment bank Lehman Brothers and US insurer AIG both dealt in complex financial instruments involved in the global markets, the fall of the former, and the unprecedented takeover by the US government of the latter, has injected a shot of uncertainty into agriculture commodity market.
"Most of the agri quotations were down during all of the trading session yesterday," said commodities analyst Nelson King, cited by Commodityonline.com yesterday.
AIG is a global insurer that provides derivatives to investors on the commodity markets. As such, the US firm acts as a counterparty to a chunk of investments in the commodities benchmarking index, the Dow Jones AIG Commodity Index.
As a result of its near-bankcruptcy, CME Group, the world's largest futures exchange, announced "emergency action" on Wednesday to reduce the number of AIG agricultural commodity positions.
The order permitted the limited execution of block trades – privately negotiated transactions executed outside of the public auction market – by AIG in certain commodity futures products, "including soybeans, soybean oil, corn and wheat".
And while observers, such as the UN's Food and Agriculture Organisation, have cited the increasing involvement of institutional investors buying positions in food commodities as playing a role in pushing food prices upwards in recent months, there is evidence to suggest the food industry remains the biggest player in the market.
"In the US, a look at the breakdown in the number of positions coming from investors, and coming from commercial players, shows the bulk is coming from the commercial sector," Mendelson told BakeryAndSnacks.com.
And when asked if the Lehman melt-down and AIG takeover could bring down prices on the commodity futures market, the economist proffered: "It might, but it would be a very short term phenomenon."