GOOD STANDS of wheat across most of the Southwest and estimated improved production compared to last year indicate producer incomes will e higher despite lower prices

GOOD STANDS of wheat across most of the Southwest and estimated improved production compared to last year indicate producer incomes will e higher, despite lower prices.

Higher production, lower price, higher returns

Current wheat price/production situation compared to the 2014 price/production situation shows that yield is more important than price.

In early June 2014, Oklahoma and Texas cash wheat prices were near $7. At this writing, Oklahoma and Texas wheat prices are near $5. Even with 2015 wheat prices about 29 percent lower than 2014 wheat prices, total revenue per acre will be higher in 2015 than in 2014.

Oklahoma wheat production is projected to be 114.8 million bushels compared to 47.6 million bushels last year. Texas wheat production is projected to be 120 million bushels compared to 67.5 million bushels last year. Higher production will more than offset lost income due to lower prices.

At $5, Oklahoma’s 2015 wheat crop is worth $574 million (114.8 m. bushels x $5). At $7, Oklahoma’s 2014 wheat crop was worth $333.2 million (47.6 m. bushels x $7). Oklahoma producers could receive $240.8 million more in 2015 than in 2014. This is a potential 72 percent increase in revenue.

At $5, Texas’s 2015 wheat crop is worth $600 million (120 m. bushels x $5). At $7, Texas’s 2014 wheat crop was worth $472.5 million (67.5 m bushels x $7). This is a potential 27 percent increase in revenue.

Some elevators report that most of the wheat that has been delivered is 58 pounds or higher test weight. The same elevators report that maybe 20 percent of the wheat has test weight in the 48 to 53 pound range. The remaining 30 percent is between 54 and 58 pounds.

Test weight discounts at sub-terminal elevators have been published showing discounts up to 20 cents per bushel for 55.5-pound wheat. The discounts then progress at 5 cents for each half pound below 55.5 pounds. The price discount for 50-pound test weight wheat would be 75 cents (20 cents for 55.5 plus 55 cents for 5.5 pounds below 55.5).

With 50-pound test weight wheat, the net price would be $4.30 ($5 - $0.70 discount).

Assuming that 100 percent of the 2015 crop was 50-pound test weight, Oklahoma’s 2015 crop value declines to $493.6 million, and Texas’s crop value declines to $516 million. Even so, Oklahoma’s crop value is still 27 percent higher than last year while the Texas crop is 9 percent higher.

For the latest on southwest agriculture, please check out Southwest Farm Press Daily and receive the latest news right to your inbox.

A worst case scenario assumes that 100 percent of a farm’s wheat production is 50-pound test weight.

If this analysis is applied at the farm level, the results are the same:  Most producers are better off with relatively higher production and lower prices than they were with relatively high prices and relatively low production.

Producers who deliver 58 plus pound test weight wheat may say they do not receive a premium for relatively high test weight wheat. This is true, especially since the discounts may start at 58 pounds. For example, 60-pound test weight wheat may be blended with equal amounts of 56- pound test weight wheat to make 58-pound wheat.

Producers who delivered some 60-pound wheat probably also delivered some wheat that will be discounted for test weight. No premium for 60-pound wheat and a discount for wheat below 58- pound test weight may seem unfair. A remedy is to ask for the wheat to be bought on the farm average test weight rather than by each load’s test weight.

Something else that should be considered is crop insurance.  If a farm’s average quality is sufficiently low, resulting in price discounts, a crop insurance payment may be due. Visit with your crop insurance agent before selling the wheat.

The best situation is relatively high prices combined with relatively high production. However, the current price/production situation compared to the 2014 price/production situation shows that yield is more important than price.     

Table 1. Estimated Value of Oklahoma and Texas 2014 and 2015 Wheat Production.

 

 

Oklahoma

 

Texas

 

58# + TW

50# TW

 

58# + TW

50# TW

 

(Million $)

 

(Million $)

2014/15

$333.2

$333.2

 

$472.5

$472.5

2015/16

$574.0

$487.9

 

$600.0

$510.0

Percent Change

72%

46%

 

27%

8%

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish