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Wheat producers expecting higher returns in 2016 than 2015

The Southwest wheat crop wil have less to do with price than foreign production
<p>The Southwest wheat crop wil have less to do with price than foreign production.</p>
Increased wheat production offsets lower price Production more important than price

Increased hard red winter wheat production may more than offset a 25 percent decrease in price. In the Oklahoma and Texas area, about 50 percent of the crop production is sold in June, July, and August. The remaining 50 percent is sold between September 1 and May of the next year.

(Note: Oklahoma production and Goltry, Oklahoma, prices are used in the following example. Nearly the same results could be obtained by using any location in Kansas, Oklahoma or Texas.)

The average June through August 2015 Goltry, Oklahoma, wheat price was $5.03. Since August 31, Goltry prices have averaged $4.22. This generates an average price for the 2015 wheat crop to be $4.63.

2015 Oklahoma wheat production was 99 million bushels. Thus, the value of the 2015 Oklahoma wheat crop was $458 million dollars (99 million bushels times $4.63).

At this writing, wheat may be forward contracted in Goltry, Oklahoma, basis the KC July ’16 wheat contract price minus 69 cents or $3.83 ($4.52 - $0.69).

The Oklahoma wheat tour estimated 2016 Oklahoma wheat production to be 129 million bushels. Using $3.83 as a 2016 wheat price and 129 million bushels, the value of 2016 Oklahoma wheat production would be $494 million. This is $36 million higher than last year or a 7.9 percent potential increase in producer income.

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This analysis supports the belief that production is more important than price. It is also a case where world production influencing wheat price more than local production is advantageous to producers.

TAGS: Corn
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