August 16, 2023
There are lessons to be learned from a review of producing and selling the 2023 harvested Oklahoma and Texas wheat. The most important lesson may be to recognize the magnitude of risk and uncertainty involved in farming. Unpredictable weather and price variability that is created by the world market determines the majority of the risk and uncertainty.
Production risk is the inability to predict production. It's easier to predict production for the U.S. and/or world compared to predicting production for a field or farm because prediction errors for each country tend to offset themselves.
In May 2023, the USDA predicted 2023 U.S. hard red winter (HRW) production to be 514 million bushels (Mb). In June, the HRW wheat production estimate was increased to 525 Mb and in July production was increased to 577 Mb.
Oklahoma’s 2023 HRW wheat production was predicted to be 49.5 Mb in May, 53.75 Mb in June and 70.2 Mb in July. Texas production estimates were 56 Mb in May, 60 Mb in June and 64 Mb in July. “You won’t know how much wheat will be harvested until it crosses the scales.”
Most Oklahoma and Texas wheat was planted in drought conditions. Between the drought and extremely cold winter temperatures causing winter kill, wheat production was more uncertain than normal.
Drought conditions continued through winter and early spring. Then when harvest started so did the rain which prevented a timely harvest.
Producing the 2023 wheat crop was a nightmare! The most important lesson to be learned may be the importance of crop insurance. Even if you didn’t need it, having the 2023 wheat crop insured may have helped you sleep at nights.
Another lesson is to have plans “B” and “C.” Some producers destroyed what was left of the wheat and planted summer crops. Farming requires long-run plans. Some years are disasters and it’s important to be ready for one.
Poor and changing production conditions were accompanied by increased price volatility (Figure 1). The price volatility was partially caused by poor and changing production conditions in Kansas, Oklahoma and Texas but, the majority of the volatility may have been from other markets.
Figure 1. Pond Creek Oklahoma Daily forward contract wheat price for 2023 harvest delivery.
Source: CoMark Equity Alliance, Enid, Oklahoma
Kansas, Oklahoma and Texas 2023 wheat production is predicted to be 50% of U.S. HRW wheat production, 20% or total U.S. wheat production, 4% of world hard wheat production and 1.2% of world wheat production.
By contrast, Rusian wheat production is predicted to be 38% of world hard wheat production and 11% of world wheat production. Ukraine, in its reduced production capacity, is predicted to produce 8% of world hard wheat production and 2% of total world wheat production.
Russian and Ukrain wheat production and the war have a much larger price impact than Kansas, Oklahoma and Texas (13% vs. 1.2% in the world market).
Between Jan. 2 and May 30, 2023, the Pond Creek Oklahoma average forward contract price for 2023 harvested wheat was $7.85 with a high of $8.58 and a low of $6.95. The average single daily price change was 12 cents.
Coming into harvest (June), any price above $7.85 could be considered an above-average price. As one producer said, “$8 would be considered a good price.” That producer had eight market days in June to sell wheat at $8 or higher.
Lessons to be learned from price volatility are to stagger wheat sells and to set target prices. Take the emotion out of sellng wheat by developing a mechanical plan.
Both production and price risk teach that written plans are essential to success.
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