Farm Progress

• Prices appear stable as the price ratio of corn and wheat is returning to a traditional relationship.• Fundamentals are not bullish going into planting for 2012.• However, concern for global exports and moisture for winter seeding in the U.S. are supporting prices.

October 9, 2012

7 Min Read

Georgia harvested the same acres as last year, but wheat production dropped due to lower yields.

Planted acreage rose 30,000 to 280,000 acres but a lower percentage was carried to harvest for grain.

The average yield for Georgia was pegged at 44 bushels per acre, down 20 percent from 2011.

Wheat prices dropping to below $6 per bushel discouraged more production as well as increasing costs.

Total U.S. soft red winter (SRW) wheat production is lower in 2012 as both planted and harvested areas and yield are lower. Planted and harvested area for 2012 was down 3 percent, while yield was down 1.2 bushels to 60.5 bushels per acre.

Overall U.S. wheat production (all wheat types) is forecasted up 11.3 percent. Planted acreage rose 3 percent to 56 million and harvested acreage increased 6 percent to 48.8 million acres.

The average U.S. yield for all wheat is forecast up 2.75 bushels to 46.6 bushels per acre.

Prices were down over much of the year past until corn and soybeans price jumped and production problems surfaced in global exporting regions.

Soft red winter wheat prices ranged between $5.25 and $6.00 during October 2011 after trading at $7 during harvest. Prices began a sharp run-up in mid-June breaking $8 in July.

Prices appear stable as the price ratio of corn and wheat is returning to a traditional relationship. Fundamentals are not bullish going into planting for 2012. However, concern for global exports and moisture for winter seeding in the U.S. are supporting prices.

Planting should increase over last year and particularly harvested acreage in Georgia.


Total production for all wheat for 2012 is projected up 13.6 percent from last year at 2.27 million bushels. Soft red winter and white were decreased in size while hard red winter, hard red winter and durum jumped prior year’s poor yields.

Hard red winter wheat is up 13.4 percent, hard red spring is up 18.2 percent, and durum is up 6 percent.

Soft red winter is the third largest contributor to total production at 435 million bushels, nearly equaling hard red spring.

Overall yield is up

The overall yield for wheat is up in 2012 at 46.5 bushels even with a decline in soft red winter wheat of 5 percent to 60.5 bushels per acre.

For Georgia, planted acres were up 30,000 to 280,000 with 200,000 estimated harvested for a 44 bushel average yield. The trend yield for 2012 would be 51 bushels per acre. Georgia typically harvests 65 percent of wheat plantings for grain.

Total production of soft red winter is projected to fall short of use shrinking ending stocks to 159 million bushels.

Total supply including beginning stocks of 185 million bushels from 2012 starts out at 660 million bushels, same as last year.

Total use is projected to increase 5 percent from 475 million in 2011/12 to 500 million in 2012/13.

Domestic use and feed and residual use are projected to remain the same at 311 million and 140 million bushels respectively.

Growth in exports by 25 million will push total use up.

High corn prices don’t appear to have pushed feed use higher than the previous year unless estimates are revised later in grain stocks report.

World wheat production is projected down over last year by 5 percent or 36 million metric tons to 659 million.

Major wheat exporting countries have experienced shortfalls leading to a drop in the export trade. Export trade is expected to fall to 135 million metric tons with the U.S. capturing some of the market share as a result.

The Former Soviet Union production is down according the USDA by 4.0 million tons with lower reported area and reduced yields due to additional drought and heat damage at harvest for both winter and spring wheat crops in the FSU.

In addition to the FSU, Argentina (-23 percent), Australia (-12 percent), and the EU-27 (-3.3 percent) are having short production years. The FSU, Australia and EU-27 are the largest exporters of the ones experiencing production problems.

As a result of reduced supplies global wheat consumption for 2012/13 is lowered 14 million tons to 680 million. Imports are reduced12 million tons to 135 million.

Ending stocks will fall

Ending stocks will fall to make up for the shortage to 177 million tons.

As long as corn and soybean prices remain strong, there will be concern with wheat production so prices should remain strong for winter planting to keep acreage in wheat and alleviate the threat of greater shortage of wheat globally down the road.


Total U.S. disappearance of wheat in 2011/12 fell to 2.23 million bushels in response to smaller crop and drop in exports with increased production in exporting nations other than the U.S.

Total domestic food use rose to 926 million bushels, an increase of 1 percent. For 2012/13, the trend is forecast to reverse. Food use is expected to grow to 950 million bushels representing 76 percent of domestic use and 39 percent of total use.

Feed use is forecast to jump to 220 million bushels, having substituted for corn in rations. This figure could grow more with higher corn prices.

Exports will increase with a weaker dollar and a 7 percent drop in exporter nation production.

The U.S. is expected to export 1.2 billion bushels.

Source: FAS USDA Grain: World Markets and Trade, Circular Series, September 2012

Price projections

Local mills in Georgia and neighboring states are the main source of mill demand for Georgia wheat. Mill demand does not fluctuate as much as exports, but the domestic mill use is also limited.

Thus, exports can have a large influence on year-to-year price of soft red winter wheat. When exports are down, basis widens and prices fall in Georgia.

Prices at planting will be much better for growers than the last couple years. Basis has improved bid at 50-60 cents under under Chicago July futures for 2013.

Contract prices will likely be around $8 per bushel.

Corn and soybean prices probably peaked in early September, unless harvest surprises analysts with bigger drop in yields. These will likely be moderated with more acres planted than previously reported.

Fundamental supply and demand estimates indicate supplies should be adequate for the U.S. Exports will be key.

Marketing strategy

Strong prices and basis at planting indicate going ahead and pricing some of 2013 production. Acreage should increase in Georgia and other wheat producing areas.

Given the outlook for supply and demand, some price protection should be considered through either contracting, futures or options.

The price election for soft red winter wheat in Georgia is be around $8.55 per bushel, giving growers the opportunity to protect production costs and a higher level of revenue than in the past.

Premiums will be higher, but price risk protection can be purchased in the form of revenue insurance which allows you to go ahead and market some of the 2013 crop with confidence.

Source: FAS USDA Grain: World Markets and Trade, Circular Series, September 2012

Outlook for the 2013 crop year

The U.S. wheat outlook depends on how well planting goes for winter wheat, particularly soil moisture in the drought stricken Midwest.

There is an ample supply of U.S. wheat with export prospects improving due to a drop in foreign production. Soft red winter wheat stocks are down but will grow in 2013 given normal yields and increased acreage in response to higher prices.

However, relatively high corn and soybean prices will limit the increase of SRW acres (abandonment) come spring.

Cost of production is expected to increase attributed to all inputs. Opportunities to contract wheat for $8 per bushel should be available but done with protection. Revenue insurance should provide protection to contract early as the price election for yield and revenue protection is at least $8.50 per bushel for 2012 wheat.

The bullish run in wheat prices should result in more acres of winter wheat planted. Georgia wheat growers are encouraged to watch for rallies during the seasonal period before planting.

Spring rallies are also a time to watch due to corn and soybeans competing for spring acreage. Basis could improve between now and harvest, especially if futures prices begin to fall.

Marketing is an important part of farming, but it takes consistent monitoring of the market to take advantage of opportunities.

In the long-run, low cost producers will be successful in wheat production. Low cost producers are those who maximize yields while controlling costs.

Knowing your costs and managing production are the key combination to profitable farming.


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