Commodity marketing specialists could be excused for their sheepish looks as they took to the podium at the recent Red River Crops Conference in Childress, Texas. They knew they weren’t bearers of good news — and perhaps feared the prospect of being shot messengers as they delivered mostly gloomy outlooks.
Jason Pace, Oklahoma State University Extension economist, for instance, said burdensome stocks make market opportunities for wheat, corn and soybeans less than rosy.
The value of the dollar, he said, also makes U.S. commodities more expensive and “discourages exports.” The dollar’s value rose from 80 percent of the value of competing currencies to 94 percent.
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Oil prices also may be having an effect, he said — though not the one some would expect if they assume that lower gasoline prices means higher demand for other products. Fossil fuels trade on commodity markets, as do grains, and become part of index and other funds. When those funds sell off fossil fuels, they move out of the commodity markets and prices drop.
Pace said wheat supplies also are encouraging declining prices. Ending stocks are up 3.4 percent since September. International demand has weakened as a result of large inventories. Russia’s wheat export policy resembles China’s cotton policy, favoring limiting imports. U.S. wheat is often in high demand, however, because of high protein levels.
“We continue to add to ending stocks,” Pace said. “With anything above a 7 billion bushel supply, we see wheat prices below $6 a bushel. With a current ending stocks projection above 7 billion bushels, we’re looking at 2015 crop prospects and are watching a volatile market.”
He said weather projections are not promising for much of the Southwest. “The drought monitor indicates that the bullish projection for fall moisture in Oklahoma did not materialize. The state weather outlook is not much improved, and prospects for moisture over the next few months are not good.”
Pace said July KC price for wheat is $5.65, with a contract price of $5.05. Price range for Oklahoma is $5.15 to $5.30, with a 50-cent to 15-cent negative basis. “With basis, price is about $5.15.”
Pace said the average price for 2104 wheat is $6 (June 2014- May 2015). “That average includes prices at more than $7 a bushel right after harvest.”
He said the Agriculture Risk Coverage program in the farm bill was triggered in Oklahoma at the $6 estimated price. “That might not be true for Texas because of lower average yields,” he said. Price Loss Coverage payment was not likely to be triggered.
He figured growers who produce wheat for approximately $125 per acre will need to average 24 bushels per acre at $5.15 to break even. With $150 in production costs, yield would need to hit 29 bushels per acre. For dual purpose wheat, production cost would be $210 per acre and break-even for grain would be 38 to 40 bushels per acre.
“Harvesting wheat with four legs (grazing cattle) might be a good option,” Pace said.
Corn stocks also weigh on price. Ending stocks of 1.88 billion bushels is “considerably above the five-year average,” he said.
The U.S. grows 37 percent of the world’s corn and produced record crops in both 2013 and 2014. “Prices dropped,” Pace said. “The outlook for 2014-2015 is $3.65 per bushel.”
U.S. soybean production was also good in 2014 and added to ending stocks, so prices declined.”
The price for soybeans (at the time of the conference) was $9.69 a bushel.