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The cure for high wheat prices

The cure for high wheat prices

The expected 2014 June Oklahoma/Texas wheat price is projected to be $6. With good weather and above average production, low $5 wheat is possible.

Tongue-in-cheek: “The cure for high prices is high prices” and “The cure for low prices is low prices.”

High prices, like beauty, are in the eyes of the beholder. The 2009 through 2013 average Oklahoma/Texas Panhandle cash wheat price was about $6.48. The five-year average, 2004 through 2008, cash wheat price was about $4.97.  In 2009, wheat prices above $5 were considered high. Now prices above $6.50 may be considered high. Prices below $6.50 may be considered low.

Between 2007 and 2009, there was a major adjustment in wheat (essentially all the major grain) prices. The shift to “higher” prices started in late 2006 with a swing from wheat prices averaging below $4 to prices averaging near $5 in 2007. In August, 2007, wheat prices went above $6 for the first time and the price rally ended near $12.50 in February/March, 2008.

Cash wheat prices spent late 2008 and early 2009 near $5 and bottomed out at $3.75 in September, 2009.  Cash price stayed in the $3.75 to $4.90 range until bottoming out at $3.40 in June, 2010.

The cure for low prices was low prices. Between June, 2010 and February, 2011, cash wheat price increased from $3.40 to around $9. From that peak in February, 2011, wheat prices have been working their way back to below $6.50 in December, 2013. The cure for high prices was high price.

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The questions now are: “How low can wheat prices go?” And, “How long will prices remain low?”

It was only about three and one-half years ago when cash wheat price was $3.50. It is a fact that production costs (rent, fertilizer, chemical, fuel, labor) have increased since then. Still, prices in the $4 range are possible—not likely, but possible.

Production costs vary by location, farm, and even field. For 2012 winter wheat, the USDA (using 37.5 bushels per acre) estimated wheat break-even prices to be $3.04 for covering operating costs and $7.23 for covering total costs.

Oklahoma State University enterprise budgets indicate wheat operating costs per acre are $153 and $176 for total costs. Using 32 bushels per acre, the break-even prices are $4.78 for covering operating costs and $5.50 for total costs.

The relationship between cash prices and costs of production are important and do impact production decisions and prices. High prices result in increased production and low prices result in lower production.

The fact is that weather has a greater impact on prices than planted acres and input levels. Recently, favorable weather brought about higher-than-expected Australian wheat production and the result was lower prices.

Relatively high prices and favorable planting conditions resulted in an increase in planted world winter wheat acres and expected higher 2014 wheat production. Recent reports indicate that India may have a record number of planted acres and increased wheat production.

Australia will be exporting its higher-than-expected production. India is currently selling excess wheat for export. India’s wheat harvest starts in March and a relatively large wheat crop is expected to result in increased exports.

The most recent USDA U.S. winter wheat condition report indicates that the crop is in relatively good condition.

U.S. wheat stocks are relatively tight, which is being offset by relatively high world wheat stocks. The 2014 U.S. wheat production is expected to be relatively high and U.S. 2014/15 wheat exports may be expected to be relatively low.

How low can wheat prices go? The expected 2014 June Oklahoma/Texas wheat price is projected to be $6. With good weather and above average production, low $5 wheat is possible.

The cure for high prices may have been high prices assisted by good weather.


Also of interest:

Wheat price hunkered down for the winter

China stockpile distorting cotton market

Most U.S. cotton production now goes abroad

TAGS: Wheat
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