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1. SWFP-SHELLEY-HUGULEY-19-BARRY-EVANS-WHEAT-HARVEST-23.jpg Shelley H. Huguley/Farm Press
For the 2005 through 2009 marketing years and the 2015 through 2019 marketing years, world wheat exports increased from an average of 4.602 billion bushels per year to 6.557 billion bushels per year.

The Black Sea may be the key to higher wheat prices

2020 Wheat Outlook

Wheat production from the Black Sea exporters (Russia, Ukraine, and Kazakhstan) may be the major market factor that will impact Oklahoma/Texas wheat prices. Minor price factors include world wheat production, U.S. hard red winter (HRW) wheat production, corn production, soft red winter wheat production and wheat production by other major wheat exporting countries.

The world’s hard wheat (hard red winter and hard red spring) exporters are Argentina, Australia, Canada, Kazakhstan, Russia, Ukraine, and the United States. Between 2015 and 2019, hard wheat exporters account for 70% of the world’s wheat exports.

For the 2005 through 2009 marketing years and the 2015 through 2019 marketing years, world wheat exports increased from an average of 4.602 billion bushels per year to 6.557 billion bushels per year.

During the same time period, hard wheat exports increased from 47% of the world’s wheat exports to 70%. Every hard wheat exporter’s exports, as a percentage of world wheat exports, declined except for the Black Sea’s percentage, which increased from 16% to 33%.

During the 2010/11 wheat marketing year, projected Black Sea wheat production declined from a projected 4.95 billion bushels to 2.56 billion. Oklahoma and Texas wheat prices increased from $3.90 on July 1, 2010 to $7.03 on December 2, 2010. On February 9, 2011, wheat prices were $8.99. The major reason for a $5.09 price increase was a 49% decline in Black Sea wheat production.

Note during this same time period, U.S. wheat production increased from a projected 2.067 billion bushels to 2.208 billion bushels. Prices increased with above average and higher than expected U.S. production.  

PRICE INCREASE

The stage now is set for a major price increase. Black Sea wheat ending stocks are projected to be 404 million bushels. Black Sea 2019 wheat production was 4.2 billion bushels. This leaves a stocks-to-use ratio of 9.7%.

By contrast, U.S. hard wheat ending stocks are projected to be 779 million bushels from 1.41 billion bushels production and 1.467 billion bushels use. This is a stocks-to-use ratio of 53%.

The Black Sea doesn’t have any spare wheat. Lower 2020 production (depending on how much lower) would result in significantly higher world and U.S. wheat prices.

The current wheat price in Burlington, Oklahoma, is $4.07 and the forward contract price for the 2020 harvest is $4.19. The Perryton, Texas’ current wheat price is $3.91 with a 2020 wheat harvest forward contract price of $4.19. These prices are based off a KC December contract price of $4.31 and a KC July contact price of $4.54. The starting price for the 2020 crop is $4.19.

It is believed that the $4.19 price forward contract price is based on 11.3% protein wheat. The current KC protein premium for 12.6% protein wheat compared to 11.3% is about 40 cents.

Some trade projections indicate that U.S. hard red winter wheat plantings may be 10% less than for the 2019 crop. This lower production could have a limited but positive impact on wheat price.

However, recent history indicates that the Black Sea exporters hold the key to wheat prices. As the charts indicate, they grow 51% of the world’s hard wheat and sell 47% of all wheat exported on the world market. The Black Sea exporters dominate the hard wheat markets.

WheatOutlook.jpg

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