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Corn+Soybean Digest

Market Outlook

Since the Jan. 12 USDA crop supply and demand reports were released, wheat prices have declined between 70¢ and 90¢/bu. Soft red winter wheat prices were hit the hardest with price declines in the 85-90¢ range. Spring and hard red winter wheat prices were mostly 70-75¢ lower.

New-crop wheat prices fell about the same as old-crop prices. For some producers, harvest prices are now below breakeven. For those reasons alone, producers should shoot for higher yields to increase their return per acre.

USDA estimated 2010 U.S. hard red winter wheat acres to be 12% less, soft red winter wheat 29% less and durum wheat 1% higher than last year. Private analysts have predicted a 6% increase in spring wheat planted acres.

Using average yields and percent harvested acres, U.S. wheat production is projected to be 2 billion bushels. Adding 100 million bushels imported wheat and 975 million bushels beginning stocks results in a total supply of 3.075 billion bushels. U.S. 2010-2011 wheat marketing-year use is projected to be 2.1 billion bushels. This implies that with 2 billion bushel production, U.S. 2010-2011 wheat ending stocks will not change.

For wheat prices to increase, wheat demand must increase and/or wheat supply must decrease. The odds of increased exports or higher domestic use of wheat are relatively low.

When the U.S. winter wheat harvest starts, India’s harvest will be complete. Pakistan’s harvest will be nearly complete and China’s winter wheat harvest will be about 50% complete. All of these countries have above-average wheat stocks and reduced production would have minor impacts on U.S. wheat prices.

The next harvest that has the potential to impact U.S. wheat prices is the U.S. winter wheat harvest. For prices to be in the $5 range, 2010 U.S. wheat production needs to be less than 1.8 billion bushels. Winter wheat production needs to be less than 1.3 billion bushels. This is not very likely.

Producers need to realize that higher yields are more important than higher price. Forty-bushel wheat at $3.75 ($150) produces a higher per-acre return than 29-bu. wheat at $5 ($145).

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