July 20, 2022
In the July WASDE (World Agricultural Supply and Demand Estimates) report, the 2022/23 wheat marketing year's (June through May) average annual price was projected to be $10.50. Given that the price of wheat at this writing is about $8.35, that the average June 2022 wheat price was $10.38, and that the first half of July average wheat price was $8.51, wheat prices will have to go above $10.50 to achieve an average annual price of $10.50.
In my opinion, the 2022/23 average marketing-year price projection of $10.50 is probably too high. The market situation may support wheat prices in the $9 to $10 range.
(A caveat to this article is that I believe that prices can’t be predicted with sufficient accuracy for most to make a profit.)
Since the 2022 wheat harvest started in late May, the average daily price change in Oklahoma and Texas has been a plus or minus 28 cents. The largest daily price increase was 57 cents, and the largest daily price decrease was 64 cents.
Wheat prices tend to decline as the U.S. hard red winter (HRW) wheat harvest clears Oklahoma and Texas. At this writing, the 2022 U.S. HRW wheat harvest has cleared Kansas, and wheat prices are $5 below the mid-May peak price of $13.13.
The best indicator that the market may support $9 to $10 wheat prices may be the stocks-to-use ratios (ending stocks divided by annual use). A relatively low stocks-to-use ratio implies a relatively high price. For example, in the 2012/13 wheat marketing year, the world’s wheat stocks-to-use ratio was 26 percent (2% below average), and the U.S. wheat stocks-to-use ratio was 30 percent (7% below average). The average 2012/13 wheat marketing-year annual U.S. wheat price was $7.77.
For the 2022/23 wheat marketing year, the U.S. stocks-to-use ratio is projected to be 33 percent compared to a five-year average of 46%. This is 28% below the five-year average.
The world’s 2022/23 stocks-to-use ratio is projected to be 34.1% compared to a five-year average of 37.9 percent. This is 10% below average.
Both the U.S. and the World’s projected 2022/23 stocks-to-use ratios are more below average that the 2012/13 stocks-to-use ratios (U.S. - 28% vs. -7% and world - 10% vs. -6%). The projected 2022/23 stocks-to-use ratios are expected to support higher prices than the 2012/13 marketing year average of $7.77.
The projected 2022/23 U.S. hard red winter wheat stock-to-use ratio of 39% (five-year average is 61%) may also support $9 to $10 wheat prices.
The world’s stocks-to-use ratio include Russian and Ukraine wheat production and exports. The market appears to be assuming both Russia and Ukraine will harvest and export wheat during the 2022/23 wheat marketing year.
The USDA projects 2022/23 Russian wheat production to be 3 billion bushels compared to 2.8 billion bushels in 2021/22. Russia is projected to export 1.5 billion bushels of wheat during the 2022/23 wheat marketing year compared to 1.2 billion bushels last year.
Russian wheat exports are currently limited by the availability of ships, and sanctions may be limiting export sales.
Ukraine is projected to produce 716 million bushels of wheat compared to a five-year average of 1 billion bushels. Ukraine’s wheat exports are projected to be 367 million bushels compared to 691 million bushels last year.
The market has factored in both Russian and Ukrainian wheat production and exports in establishing current prices. Take Ukraine and/or Russia out of the market situation, and prices will probably average $10.50 or higher.
With Russia and Ukraine in the market, the numbers may indicate that the market situation supports $9 to $10 cash wheat prices.
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