Kim Anderson, Oklahoma State University agricultural economist, poses three questions about both the wheat and corn markets. “How low can prices go? When will prices go up? How can you make a profit with relatively low prices?”
The answer to the first and second questions for both corn and wheat is the same. It depends.
Anderson laid out the situation for both commodities in a presentation at the recent OSU Rural Economic Outlook Conference in Stillwater.
Wheat outlook depends on several factors. “The United States produces only 8 percent of the world’s wheat,” he said, “and exports 14 percent of the world’s wheat.” That’s down from 43 percent in 1980.
The market is working through a 26.9 billion bushel crop, a record production and also record wheat stocks at 8.4 billion bushels.
“We have a high stocks-to-use ratio, 32 percent. “That’s not real high but well above average,” Anderson says. More than 84 percent of the 2015/2016 world wheat crop has been harvested.
“Wheat prices are not determined in the United States,” Anderson said.
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The corn situation is little different. World production is estimated at 38.3 billion bushels. That’s on top of 39 billion in 2013 and 39.7 billion last year. Those yields created the second largest world ending stocks level at 7.4 billion bushels. The United States produced its third largest corn crop, more than 13.7 billion bushels, resulting in a U.S. stocks-to-use ratio of 12.9 percent—world ending stocks level is 19.7 percent. U.S. corn production is 35.6 percent of world production and the United States accounts for about 40 percent of world exports.
Considering those numbers, Anderson says wheat will have a hard time moving up very much above the $4.40 range. A $2.75 cash price could be the floor for corn.
When will markets improve significantly? “Wheat prices will go up when we lose a crop somewhere in the rest of the world,” he says.
For corn, prices will make a jump “when we lose a U.S. or a foreign crop.”
Making a profit with low prices will be difficult, he says. Wheat producers need to pay attention to protein levels. “The price of a low protein crop in 2016 will be even lower, closer to $3 a bushel.”
Paying attention to crop management, even with a down market, is the best thing a wheat or corn producer can do, Anderson says. To take advantage of any market, he has to have something to sell.
He referred to a short story published in Colliers Magazine back in the 1930s. A banker reluctantly approved a loan for a farmer who down to his last few cents. The banker instructs the farmer to use part of the loan to buy a windmill since lack of water is his biggest weakness.
“I never stake a man unless I stake him right,” the banker said.
Anderson concurs. To stand a chance of making a profit with wheat or corn in 2016 farmers will have to do things right and manage carefully to maintain yields.