In the January WASDE (World Agricultural Supply and Demand Estimates) report, world wheat production was estimated to be a record 28.4 billion bushels. World wheat use was projected to be a record 27.9 billion bushels. 

Ending stocks were projected to be a record 11.5 billion bushels. The stocks-to-use ratio (ending stocks divided by use) was projected to be a record 41.2%.  

At this writing, wheat may be forward contracted for 2021 harvest delivery at Medford, Oklahoma, for $6.37 (-15 KC July ‘21) and at Perryton, Texas, for $6.17 (-35). This time last year, the forward contracts prices were $4.79 (-30 KC July ‘20) at Medford and $4.74 (-35) at Perryton. 

What’s going on? More wheat and significantly higher prices? Let’s see if we can make some sense (cents) out of this.  

Production for the major hard wheat exporters is estimated to be 8.8 billion bushels compared to 8 billion bushels during the 2019/20 marketing year. Total hard wheat exporters’ ending stocks are projected to be 1.6 billion bushels compared to 1.5 billion bushels last year. The five-year average ending stocks is 1.7 billion bushels. 

It should be noted that it’s not just Oklahoma/Texas wheat prices that are higher than last year. All U.S. wheat prices and world wheat prices are higher than last year. 

In mid-January, the 12.5% milling wheat price FOB (Free on Board) Black Sea was $7.85 per bushel. At the same time last year, the FOB Black Sea price was $6.18. Black Sea exporting countries’ wheat production is estimated to be 4.5 billion bushels compared to 4.2 billion last year. 

Black Sea exporters’ total wheat use is projected to be 4.4 billion bushels. And, ending stocks are projected to increase from 331 million bushels to 528 million bushels. 

Wheat supplies have increased and higher supply normally means lower prices. But, demand (use) has also increased. The price impact of increased demand may have more than offset increased supply resulting in higher prices.  

Demand has increased because of population growth, improved economic conditions around the world, higher feed grain prices and the psychological impact of uncertainty. Over the last 20 years, population growth and improved economic conditions have resulted in an average 1.3 percent increase in wheat use per year. 

Use is projected to increase 1.9 percent between the 2019/20 and 2020/21 wheat marketing years.  

Just because wheat is in storage, does not mean that it’s for sale and can be counted as supply. The price increase may be partially due to wheat being held off the market. 

An example is Russia adding an 82 cent per bushel tax on exported wheat and announcing that another 54 cents may be added. There is also discussion in Russia of an export tax formula that would be placed into effect for the 2021 wheat crop. Russia, and other exporting nations, have decided that their wheat ending stocks are insufficient and should be increased by not selling wheat. 

 Another factor impacting U.S. wheat prices is a 5% decline in the dollar value relative to other major currencies. The effectively lowers the price of U.S. wheat (raises the domestic price) relative to competing countries' wheat prices.  

The market situation (philosophy) may have changed because of COVID and other changes in the world economies. Increased demand, both from consumers and from suppliers (farmers and exports storing wheat rather than offering it for sale) has resulted in higher prices. Some things in the market may not make complete sense but these things have created the opportunity to keep more cents in your pocket.