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swfp-shelley-huguley-kim-anderson-header.jpg Shelley Huguley

WHEAT SCOOPS: Long-term wheat price outlook

Kim Anderson discusses five-year and 10-year price projections.

The Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) projects U.S. wheat prices to average about $4.60 for the next five years. The USDA Economic Research Service (ERS) projects the U.S. wheat price to average about $5.00 for the next 10 years.

Over the last 20 years, Oklahoma and Texas average annual wheat prices have averaged 12 cents less that the U.S. average annual prices. Averaging the last 10 years of annual average wheat prices, Oklahoma and Texas prices were 23 cents less than U.S. prices. During the last five years, Oklahoma and Texas prices have averaged 32 cents less than U.S. prices.

Using the 10-year average price difference (23 cents), FAPRI-MU’s five-year price projection would be $4.37 and USDA’s 10-year price projection would be $4.77.

USDA data shows that for the 2018 wheat crop, 75 percent of Oklahoma wheat and 86 percent of Texas wheat was sold by August 31. Comparing average Oklahoma wheat prices with average U.S. wheat prices for the June through August time period, Oklahoma’s average price was three cents higher than the U.S. price.

This result implies that if Oklahoma and Texas wheat crops are sold before August 31, U.S., Oklahoma and Texas prices will be about the same. In this case, the five-year average price projection would be near $4.60 for FAPRI-MU and $5.00 for USDA. These projected prices are below the cost of production for many producers.

A review of historical wheat prices supports the $4.60 to $5.00 average price projection (Figure 1). Between 1960 and 1972, Oklahoma average monthly wheat prices were between $1.20 and $2.00. In 1972, the U.S. sold wheat to Russia, which resulted in prices breaking the $2.00 resistance level. In 1973, both China and Russia bought U.S. wheat, and the magical $5.00 wheat price level was established.

wheat-scoops-kim-anderson-graph.jpg

Figure 1. Oklahoma average monthly wheat prices January 1960 through July 2020

Between 1975 and 1995, wheat prices traded mostly between $2.00 and $4.00 and averaged $4.26. Twenty-two years after first establishing $5.00 wheat, prices broke the $5.00 resistance level (January 1996). Lasting only six months, $5.00 wheat was short-lived.

For the next 11 years (1996 – 2007), Oklahoma wheat prices traded mostly between $4.00 and $5.00. Monthly average prices peaked at $10.60 (March 2008). However, farmers had very little wheat to sell and the last $2.00 ($8.60 to $10.60) was mostly because of small speculators. So, it is relatively safe to say that farmer prices peaked at about $8.60.

Since the $10.60 price peak, wheat prices have been on a “rollercoaster.” Within 27 months (March 2008 to June 2010), wheat prices went from $10.60 to $3.75, back up to $8.56 (29 months), and back down to $2.97 in 23 months.

Oklahoma wheat prices appear to be building a price channel between $3.00 and $6.00, which is consistent with the higher price support level established by ethanol corn demand in 2007. It is also consistent with FAPRI-MU and USDA’s long-run price projections.

Another reason to expect prices to trade in the $3.00 to $6.00 range and average between $4.50 and $5.00 is the probability of relatively high world wheat stocks. Every year since the 2012/13 wheat marketing year, world wheat production has been greater than world wheat use. World wheat ending stocks have increased from 6.6 billion bushels in 2012/13 to a projected record 11.6 billion bushels for 2020/21.

Historical price trends and the world’s wheat supply and demand support FAPRI-MU and USDA’s five-year price predictions that prices will average between $4.50 and $5.00.

TAGS: Outlook
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