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WHEAT SCOOPS: Wheat yield may be more important than protein premium

Average wheat yields up in Oklahoma but down in Texas.

At this writing, wheat prices are $4.10 in Northern Oklahoma, $4.25 in southern Oklahoma, and $4.20 in the Texas panhandle. The five-year average Oklahoma July price is $4.52, and the five-year average Texas July wheat price is $4.50. The average Medford, Oklahoma daily price from June 15 to July 15, 2020 was $4.10, and the average Perryton, Texas price was $4.18.

During this same time period, the Kansas City (KC) wheat basis for 12.0% through 12.4% protein wheat averaged about 50 cents higher than the 11.2% KC wheat basis.

According to wheat samples tested by Plain Grains Inc., Oklahoma and Texas wheat averaged about 11.2% protein. If the protein had averaged 12.0% or higher and half of the 50 cent KC protein premium was received, the average Medford price would have been $4.35 and the Perryton price would have been $4.43.

The Oklahoma 2020 average wheat yield was 42 bushels per acre compared to 40 bushels in 2019 and a five-year average of 33 bushels. The Texas 2020 average wheat yield was 32 bushels per acre compared to 34 bushels in 2019 and a five-year average of 31 bushels.

Texas farmers missed out on both above-average yield and protein. Oklahoma wheat farmers missed out on protein, but yield was well above average.

Oklahoma’s wheat yields were 27% above the five-year average (42 versus 33). The increase in yield raised the gross return per acre from $135 to $172 (33 bu. x $4.10 = $135; 42 bu. x $4.10 = $172).

If Oklahoma farmers had produced 12.0% or higher protein and received 25 cents of the 50-cent protein premium, the effective price would have been $4.35. The gross per acre would have been $183 per acre (42 bushels x $4.35).

To summarize: with average yield and no protein premium, the gross income per acre would have been $135. With a 27% increase in yield, the gross income per acre would have been (and was) $172.

If farmers had produced average yield and 12% or higher protein and received half of the KC protein premium (25 cents), the gross income would have been $144 (33 bushels x ($4.10 + $0.25 premium). With 42 bushels per acre with 12.0% protein or higher, (25 cents), the gross income per acre would have been $183.

Add to the equation that above-average yields often result in relatively low protein, the conclusion may be that above-average yield may be worth more than above-average protein.

Some farmers have been reported as having both relatively high yields and protein. The reports were that these farmers received between 20 and 30 cents per bushel premiums. Reports also indicate that some farmers’ yields averaged 50 to 60 bushels per acre.

Now the question is, “What is cost per acre?” With the 2020 average yield (42 bu.) and average protein (11.2%), the maximum variable cost to break-even was $172.

One last point: for the next five years, both the USDA and the University of Missouri’s Policy Center predict that the U.S. average annual wheat price will be about $4.60. Oklahoma and Texas wheat prices tend to average about 10 cents below the average U.S. price.

With average yields (33 bu.) and the projected average annual price ($4.50), the average gross return would be $149 (33 bushels x $3.50). The average price may be based on 12% or higher protein.

As Oklahoma and Texas farmers plan the 2021 wheat crop, they need to consider the cost to produce above average yields and/or above average protein. Is additional yield and protein worth the extra cost and effort? Yield may pay more than protein.

TAGS: Outlook
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