Drought, war, inflation, recession, the value of the U.S. dollar, and the political climate (not a complete list) may make the current wheat market situation riskier than at any other time in the last 40 years. Farmers are experiencing higher input costs plus the uncertainty that some inputs are unavailable or will not be available when needed.  

At this writing, 2023 harvested wheat may be forward contracted for $9.25 (-40 cents KEN23) in Perryton Texas, $9.10 in Medford Okla., (-55 cents KEN23), and $8.65 (-$1 KEN23) in Altus Okla. However, actual prices during June and July 2023 could easily be $3 lower or $3 higher. 

Without the drought and long-run weather forecast (above-average temperatures and below-average precipitation), current wheat forward contract prices could easily be $1 lower. Continued drought could result in even higher prices. 

The Russia/Ukraine war has impacted input costs, wheat prices, and the supply of marketable wheat. The war has also disrupted the transportation system, which impacts the availability of parts and equipment. 

See, COTTON SPIN: Working against October surprises  

Russia exports 19% of the world’s wheat exports, 13% of the world’s oil, 19% of potassium fertilizer, 15% of nitrogen fertilizer, and 14% of phosphorus fertilizer. Russia was also the number one exporter of natural gas.  

Ukraine exports 10% of the world’s wheat and 14% of the world’s corn.  

Russia and Ukraine’s commodities are being sold and shipped. However, the quantities being sold and shipped are significantly lower than before the war.  

The war and COVID resulted in higher world use (consumption) of wheat. Higher use may be attributed to hoarding. Between the 2019/20 and 2020/21 wheat marketing years, world wheat use increased 4.7%. Use increased an additional 2% during the 2021/22 marketing year. There was essentially no change in annual use during the 2015/16 through 2019/20 marketing years.  

The U.S. dollar index increased 20%, from 95 in January 2022 to 114 in September 2022. The dollar index has now declined to 110, which still leaves a 16% increase. The higher index essentially increases wheat prices by the same percentage increase. 

The value of the U.S. dollar is impacted by a relatively strong U.S. economy and the Federal Reserve increasing Federal interest rates. 

Inflation results in higher production costs, and a recession may have a negative impact on prices. Both add uncertainty to costs and prices. 

The book, “Reed Anthony, Cowman: An Auto Bibliography” (Andy Adams, 1907), is about a Texas cattleman who left Georgia after the Civil War with nothing. During his lifetime, he built a large ranch. He is quoted in the book as saying, “Politics had never affected my occupation seriously; in fact, I profited richly through the extravagance and mismanagement of the Reconstruction regime in Texas, and again met the defeat of my life at the hands of the general government.”  

Times don’t change, but changes in government programs do impact production costs and prices. The upcoming elections add uncertainty to the markets. 

Current wheat supply and demand conditions support above-average prices. The 10-year average price is $5.50. Without the war, the drought and other problems, wheat prices would probably be in the $6 to $7 range. Instead, they are in the $8.50 to $9.50 range. 

With the war, drought and other problems, wheat prices are expected to remain in the $8.50 to $9.50 range.  

If the drought persists and if the Russian/Ukraine war results in a reduction of exports out of the Black Sea ports, 2023 harvest wheat prices could be $13 or higher.  

Uncertainty in the wheat market is not expected to diminish any time soon.