At this writing (December 2020), wheat may be forward contracted for 2021 harvest delivery for $5.35 (-20 cent basis KC July ‘21) in Medford, Okla., and for $5.20 (-25 cent basis KC July ‘21) in Perryton, Texas. Figure 1 shows the Oklahoma and Texas Panhandle Monthly Average Wheat Prices from 1960 to 2020.
Figure 1. Oklahoma and Texas Panhandle Monthly Average Wheat Prices: 1960-2020.
At this time in 2019, the forward contract price was $4.13 (-35 cents KC July ’20) in both Medford and Perryton. The higher forward contract price and basis signal potentially higher prices in 2021.
When evaluating potentially higher prices, there’s good news and bad news.
Bad news first: At the end of the 2020/21 wheat marketing year (May 30), a record 11.8 billion bushels of wheat is projected to be in storage worldwide. This amount is 43% of the wheat needed to meet the 2021/22 marketing wheat needs (stocks to use ratio). Over the last five years, world wheat ending stocks have averaged 10.1 billion bushels. The five-year average stocks-to-use ratio was 37.6%.
Relatively higher wheat prices are expected to result in an increase in wheat planted acres. Russian 2021 wheat planted acres have been estimated to be 9% higher than last year. With good production weather, 2021/22 marketing year world wheat production could break 2020/21’s record of 28.4 billion bushels.
Reports indicate that some wheat importers are building stocks to insure against wheat shortages due to COVID-related shipping problems. When COVID is under control, these countries may revert to “normal” stocks and import demand may go back to normal resulting in a short period of relatively low prices.
The good news includes relatively tight hard wheat (bread flour) stocks. Bread flour wheat (BFW) includes hard red winter and hard red spring wheat. Bread flour producing countries include Argentina, Australia, Canada, Kazakhstan, Russia, Ukraine, and the U.S. The 2020/21 BFW countries’ wheat ending stocks are projected to be 1.8 billion bushels compared to a five-year average of 2 billion bushels. The stocks-to-use ratio is projected to be 18% compared to a five-year average of 22%.
Even though wheat planted acres are projected to be higher in 2021/22 than in 2020/21, poor planting conditions may have reduced the yield potential to produce another record 2021/22 world wheat crop.
The value of the U.S. dollar has declined from a peak of 103.15 in March 2020 to 90.87 at this writing. This figure is equivalent to a 12% decline in the price of U.S. wheat for wheat importers. The result is higher export demand for U.S. wheat and relatively higher U.S. wheat prices.
Most market analysts know that winter wheat yields are mostly determined during the March through May period in the U.S. and from April through June in the Black Sea area.
Current conditions indicate that 2021 wheat prices during the June through August 2021 period are projected to be in the $5.25 area. Weather impacts could result in a range of prices from $4.25 to $6.25. The odds are that June 2021 wheat prices will be higher than June 2020 prices.
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