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swfp-shelley-huguley-19-wheat-evans.jpg Shelley E. Huguley

What must happen to generate higher wheat prices?

Wheat price decline since the 2012 peak may be attributed to increased production and exports from the Black Sea exporting countries.

During the last 50 years, two shifts in wheat prices have resulted in higher prices. One was in 1973 when the average annual wheat prices increased from about $2.60 to about $3.25 (Figure 1). This price shift was caused by increased wheat export demand, mostly from Russia and China.

USDA/ERSwheat-anderson-figure-1.jpg

The next price shift occurred during the 2005/06 through 2007/08 wheat marketing years. Wheat prices increased from $3.39 (2005/06 average annual price) to $6.93 (2008/09 average annual price). This price shift was called “the ethanol impact.”

The corn market was buying land from the other grain markets to produce corn for ethanol. Average annual corn prices increased from $2.00 in 2005/06 to $4.06 in 2007/08.

Higher corn prices motivated producers to take land out of soybean and other crop production and put the land to corn production. Wheat prices followed corn prices higher. During times of tight wheat supplies, wheat created a market of its own with record high average annual prices (2008-$6.93, 2011-$7.05, and 2012-$7.45).

The higher prices made it profitable to produce wheat, and world wheat production increased (Figure 2, world wheat production is shown on the left axis and U.S./Black Sea Exporters production is shown on the right axis. Black Sea Exporters’ data starts in 1987).

wheat-anderson-figure-2A.jpg

In the nearly 50 years between 1970 and 2019, world wheat production increased an average of 344 million bushels per year. Between 1970 and 1986, it increased an average of 500 million bushels annually. Between 1986 and 2003, it increased an average of 68 million bushels per year. Between 2006 and 2019, world wheat production increased 468 million bushels per year.

United States wheat production doubled from 1.4 billion bushels in 1970 to 2.8 billion bushels in 1981. By 1986, U.S. production was back down to 2.1 billion bushels. Since 1986, U.S. wheat production has ranged between 1.6 billion bushels (2002) to 2.7 billion bushels (1990). For the last five years, U.S. wheat production has averaged 2.0 billion bushels per year.

After each upward shift in wheat prices, world wheat production exceeded wheat demand and prices adjusted downward. The wheat price decline from the 2012 peak may be attributed to increased production and exports from the Black Sea exporting countries.

Black Sea wheat production increased from 2.33 billion bushels in 2012 to 4.67 billion bushels in 2017. Black Sea exporters’ production is projected to be 4.1 billion bushels (Figure 2) for the 20109/20 marketing year. Black Sea exports (mostly hard red winter and hard red spring wheat) have increased from 911 million bushels in 2012/13 to a projected 2.2 billion bushels in 2019/20.

Short-run price increases may be the result of weather-related crop failures in major exporting countries. The last big price move occurred in 2010/11 when the Black Sea wheat production was 1.0 billion bushels below what was projected.

Achieving higher average wheat prices may take a few years. Consumption must catch up with and surpass world wheat production.

TAGS: Crops
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