The Food and Agricultural Policy Research Institute (FAPRI-MU) has released the 2019 through 2028 Baseline Outlook (https://www.fapri.missouri.edu/publications/outlook/). The publication provides an in-depth analysis of the current economic situation for all aspects of U.S. agriculture and in-depth projections (cost and return budgets) of the major agricultural commodities.
A small part of the publication is a 10-year (by year) average annual U.S. wheat price projection. For the marketing years 2019/20 through 2028/29, the 10-year average projects the U.S. wheat price to be $5.19, the maximum average annual price to be $5.31, and the minimum average annual price to be $5.03.
While any long-range projection must be taken “with a grain of salt,” FAPRI has been as good as anyone in projecting long-run average prices. Any given average annual price may be significantly higher or lower than the projected price range but, in the past, prices have had a tendency to gravitate to FAPRI’s projected prices.
It is possible to “pick holes” in these price projections. First, it’s a “lead pipe cinch” that, between now and June 2028, average annual U.S. wheat prices will be well above $5.31 and below $5.03.
For the 2008/09 wheat marketing year, U.S. wheat prices averaged $6.78. That year, FAPRI released a 5-year projection by year. The 2009/10 marketing year wheat price was projected to be $5.04. The actual 2009/10 average price was $4.87. The projected price was in the right direction and relatively close.
In the 2009 report, the 5-year average projected price was $5.20, and the actual average price was $6.41. In FAPRI’s defense, crop years 2011/12 through 2014/15 had record or near-record prices. Also worth noting is that, in 2015, prices eventually moved back down to near FAPRI’s projected price level.
During the last five years (2013/14 through 2018/19), average annual U.S. wheat prices averaged $4.93. FAPRI’s 10-year projection ($5.19) indicates that prices will remain relatively close to this price.
A problem in projecting wheat prices is that, during the last 10 years, the world wheat market has changed. Wheat production in the Black Sea area (Russia and Ukraine) increased 16 percent, and exports increased 55 percent (1.025 billion bushels to 1.856 billion bushels).
Russia and Ukraine now dominate the world’s hard wheat market. During the 2018/19 wheat marketing year, about 50 percent of the world’s hard wheat exports were out of the Black Sea area. This dominance is projected to keep average wheat prices at current levels.
The odds are that for at least one year during the next 10 years, average annual U.S. wheat prices will be in the $7.50 range. The cause will probably be a crop failure in the Black Sea area.
In 2009/10, Russian and Ukraine wheat production was 3.29 billion bushels. In 2012/13 wheat production, for Russia and Ukraine, was 1.97 billion bushels. During the 2012/13 wheat marketing year, U.S. wheat prices averaged $7.77.
OKLA & TEXAS
For planning purposes, projected average annual U.S. prices must be adjusted to Oklahoma and Texas. During the last 10 years, Oklahoma’s average annual wheat price has averaged 22 cents less than the average annual U.S. wheat price.
This fact implies that if the U.S. 10-year average annual wheat price is $5.19, the average Oklahoma wheat prices will be $4.97. Average annual Texas prices will be relatively close to Oklahoma’s average prices.
The message is that if producers cannot produce wheat for less than $5.00 per bushel, the odds are that they will lose money. If they lose money, they will get out of wheat production and/or farming all together.
FAPRI’s projections may be wrong. The question is, “Do you want to bet against them?”