Larry Stalcup

October 5, 2009

4 Min Read

Whether you grow hard red winter in western Oklahoma or hard red spring in Oregon, wheat prices are as hard to gauge as whether it will rain enough. Grain marketing economists say supply and demand of quality wheat are still among the biggest factors in determining prices. But knowing when current prices will rebound is something they have trouble answering.

Frayne Olson, North Dakota State University Extension crops marketing economist, notes that harvesting spring wheat fields with high yields and good quality brings a feeling of pride and satisfaction to most farmers, especially when the spring planting season was a fight against rain and mud.

“However, seeing the current prices posted at the local elevator can shift a feeling of satisfaction to one of frustration very quickly,” he says. “The frustrations are compounded when discounts are applied and the potential sales price falls further. Answering questions on when prices will improve is very difficult because we must anticipate events in the future.”

Olson says the market is shifting focus quickly away from supply issues and toward demand considerations. “The current estimated U.S. all wheat stocks-to-use ratio is a comfortable 33.5%, which is above the 15-year average of 26.8%,” he says. “Both the U.S. and world wheat-producing regions had another good year. The U.S. is expected to harvest a near-record corn crop and a record soybean crop.

“In short, there is a plentiful supply of wheat and the risk of a short corn or soybean crop are fading with every new weather forecast. Because of the plentiful supply, domestic and international wheat buyers are purchasing only the amounts needed to meet short-term needs and they are shopping around to find the best value. Wheat futures have been a price follower to corn and soybeans for the past two months because of the greater uncertainty surrounding varying yield estimates and weather forecasts.”

Olson says the base price for 14% protein spring wheat will be heavily influenced by competition in the international wheat market and the ability of the U.S. to remain competitively priced. “The value of the U.S. dollar and the export sales pace for winter and spring wheat will be key factors to watch for general price direction,” he says.

Protein premiums and discounts are not expected to change substantially until the quality of the 2010 spring wheat crop is known, he says. He adds that the discounts for very low-protein spring wheat may soften if the milling and baking industries are able to use the low-protein spring wheat in their flour blends or possibly as a substitute for hard red winter wheat.

Stocks to use Kim Anderson, Oklahoma State University Extension grain marketing economist, says the recently released September USDA wheat stocks and quarterly use estimates showed that all wheat stocks were estimated to be 2.2 billion bushels – up 19% – compared to 1.86 billion in 2008. June through September wheat use was estimated to be 661 million bushels compared to 949 million in 2008, down 18%. First quarter use was 288 million bushels less than last year.

“USDA projects 2009-2010 marketing exports to be 950 million bushels compared to 1.015 billion last year,” says Anderson. “This is a 6.4% reduction. All wheat U.S. export sales are 231 million bushels, 40% less than last year. Shipments are 160 million bushels – 31% less than last year. Lower export shipments make up 56% of the 288-million-bushel reduction in use. The remaining 44% is due to lower domestic feed and flour use.

“With old-crop (2008-2009 marketing year) corn stocks at 1.67 billion bushels and a projected 13-billion-bushel 2009 corn crop, there is little chance that much wheat will be used for feed. USDA projected 235 million bushels of wheat for feed use and the 950 million bushels for exports will probably be reduced. This would result in ending stocks being higher than the projected 743 million bushels. High stocks supply and relatively low demand is why wheat prices are unable to rise.”

The Kansas City Board of Trade December wheat contract closed Friday at $4.59/bu., while Chicago December closed at $4.41. “This (Kansas City price) is barely below the $4.60 support price,” says Anderson. “The December contract has been trading in a sideways pattern between $4.60 and $4.90 since Sept. 4.

“There just hasn't been any positive price news to support prices. Producers own a lot of wheat. Producers are planting wheat and need to pay some bills. Increased producer selling, plus low export demand, plus better-than-expected Argentina and Australian wheat production may cause wheat prices to decline another 40¢. These sideway patterns can last for weeks and if the price breaks out the bottom, prices fall about 40¢.

“If you can't risk lower prices, sell some or all of your wheat. Or else, consider selling one-third of your wheat in September, one-third in October and the final one-third in November. Sell some wheat on any rally. There is about 40¢ downside risk and 60¢ upside potential in the market. The most important thing about selling wheat is to have a written plan,” Anderson says.

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