Since Dec. 1, 2018, the Burlington, Okla. wheat price has been as low as $4.68 and as high as $5.01. Since Jan. 3, prices have traded in an 11-cent price range. To put it lightly, the wheat market has just been wallowing around.
For prices to increase, it is going to take increased export demand for U.S. hard red winter (HRW) wheat and reduced exports from the Black Sea area (Russia and Ukraine). Recent headlines:
(Bloomberg News 22 Jan. 2019) “China Officials said to mull 3m-7m tons U.S. wheat purchases.” In bushels, 3m–7m tons is 110 million to 257 million bushels of wheat. This amount would be a good start, but the China purchase of wheat is dependent on negotiations.
(Reuters 22 Jan. 2019) “CBOT climbs on expectations of tightening Russian supplies.” The wheat contract price increases that this article references may be described as minimal. Since early December, the KC March wheat contract price has had a 21-cent price increase. The importance of the article is that it provides information that supports the tightening of Russian exportable wheat supplies.
(Reuters 22 Jan. 2019) “Ukraine warns traders after wheat exports near limit.” The article reports that, as of Jan. 18, 83 percent of Ukraine’s wheat export target had been reached. Ukraine’s ministry has requested that exporters provide information about future wheat export sales.
(Reuters 18 Jan. 2019) “Russia aims to regulate domestic grain prices.” This article and others report that Russian wheat exports have resulted in higher prices. In July 2018, Russia sold wheat for $5.55 FOB Black Sea port. In January 2019, Russia sold wheat for $6.80 FOB Black Sea port. As of Jan. 10, Russia had shipped 908 million bushels out of a projected 1.34 billion bushels of wheat for export. At this rate, Russia will complete exporting 2018/19 marketing year wheat in March.
(Kansas Wheat Commission) “Planted wheat acres down in Kansas.” “Wheat acres in Kansas will likely be lower than last year, possibly reaching 100-year lows in the state. Last year’s 7.7 million planted acres were the third lowest in a century. Kansas is the largest HRW wheat-producing state. The five-year average Kansas yield is 40 bushels per acre compared to 29 bushels for Oklahoma and 30 bushels for Texas. Lower acres in Kansas will have a larger price impact than lower acres in Oklahoma or Texas.
Market news articles imply that export sales from the Black Sea area (Russia, Ukraine, and Kazakhstan) will decline, and that some demand may shift to the U.S. Argentina and Australia also have wheat for export.
MORE ARGENTINE WHEAT
Argentina’s and Australia’s wheat harvests are complete. Argentina’s wheat production is estimated to be about 700 million bushels, compared to 680 million bushels last year and a 5-year average of 534 million bushels. Argentina has good quality HRW wheat that will compete with U.S. HRW wheat.
Australia’s wheat production is projected to be 625 million bushels, compared to 783 million last year, and a 5-year average of 914 million bushels. Production problems are expected to limit Australia’s wheat exports. Australia does have wheat for export, but tight stocks may result in relatively high prices compared to the export market.
Another concern is record or near record 2019 wheat production in India and Pakistan. A concern is that these countries will export wheat during the April through June time period.
With reduced Black Sea wheat available for export and potential exportable wheat available from India and Pakistan, the demand for U.S. HRW wheat may not dramatically increase until June or July.
What will it take for U.S. wheat exports to increase? It will take lower than expected production in Russia, Ukraine, India, and Pakistan.