Depending on the location, wheat may be forward contracted for 2018 harvest delivery in Oklahoma or the Texas Panhandle for between $3.80 and $4.05. Using $175 per acre variable costs, breakeven yields are 46 bushels for $3.80 and 43 bushels for $4.05.
To make a profit in today’s market, producers must figure out how to get yields above 45 bushels per acre and/or figure out how to reduce costs. Or, at $175 in costs and 32 bushels per acre, they need to figure out how to get $5.50.
The reality is that what you really want to know is, when will Oklahoma and Texas wheat prices go above $5.00 or even $6.00. But “when” cannot be determined. What must happen to result in $5.00 wheat, we can discuss.
First, let us look at why wheat prices are near $3.40 per bushel rather than $5.00. On July 5, 2017, prices in Oklahoma and Texas were near $5.00 ($4.80 to $5.10 range). At this writing, Oklahoma and Texas prices are between $3.30 and $3.50. Since early July, prices have declined about $1.50.
LOW PROTEIN LEVEL
This price decline had very little to do with U.S. wheat production, which declined from a projected 1.82 billion bushels in June to 1.74 billion (-84 million) bushels in October.
One factor that may have resulted in lower prices is the relatively low protein level of U.S. hard red winter wheat.
Higher than expected foreign wheat production may have been responsible for lower prices. The June WASDE (World Agricultural Supply and Demand Estimates/USDA) report projected that world production would be 27.18 billion bushels, and foreign production would be 25.35 billion bushels.
The world and foreign wheat production projections in the October WASDE were 27.60 billion bushes and 25.86 billion bushels, respectively. Between the June WASDE and the October WASDE, world production increased 427 million bushels, and foreign production projections increased 511 million bushels. Note that lower U.S. production was more than off-set by increased foreign production.
MORE RUSSIAN WHEAT
The majority of the foreign production increase was Russia’s 465 million bushel increase in projected production (some analysts predict that Russian production will probably be closer to 500 million). Therefore, the production increase was mostly Russian hard red wheat, which competes directly with U.S. hard red winter wheat.
The remainder of the foreign production increase was partially due to higher than expected production in the Ukraine, which also produces hard red wheat.
Another factor that may affect Oklahoma and Texas wheat prices is the supply and price of corn. Since June, the Texas Panhandle corn price has remained near $3.90. While $3.90 corn and $3.50 wheat may result in the opportunity to sell some wheat in the feed market, the price of corn provides no support for $5 wheat.
The above information indicates that for Oklahoma and Texas wheat prices to rise to $5.00, world wheat production must decline to 26.2 billion bushels, and world ending stocks must decline to 9 billion bushels.
With a projected 9.85 billion bushel world wheat carryout (ending stocks), and assuming 2108/19 use of 27.1 billion bushels, 2018 world production must be below 26.2 billion bushels for any chance of $6 wheat.
The odds of Oklahoma and Texas wheat prices reaching $5.00 before July 2018 are slim. Oklahoma and Texas prices could reach $5.00 when their wheat is harvested and it is 58 pound-plus test weight, with a protein level of 11.5 or higher, and world wheat stocks are projected to be 9.2 billion bushels.
The earliest $5.00 wheat is expected is July 2018 — and maybe July 2019.