Wheat farmers who defied the weather gods and made decent yields in 2002 may be doubly blessed from a world supply that’s trending downward and prices that show signs of holding in the $3.25 to $3.70 cents per bushel range into the winter.
Locking in a profitable price for the 2003 harvest also looks promising.
Mark Waller, Texas Extension economist, says the view may not be as rose-colored as it was for the 1994-95-crop year, but it beats anything offered lately.
"We saw July 2002 futures top $3.70 a bushel," he told growers at the Big Country Wheat Outlook Conference in Abilene last week.
"For the past three or four years, world wheat production has been lower than consumption," he said. "Ending stocks have fallen, a dramatic dip last year. Now, prices have become more sensitive to crop shocks."
The drought that lingered over much of the grain belt most of the growing season kept prices up, he said. The 2002 U.S. crop shortfall coincides with an acreage reduction trend ongoing since 1996. The first few years of that cutback, Waller said, had little or no effect on production. "Yields actually improved as we got a lot of poor soil out of production. But the last few years reduced acreage, combined with crop losses, ate away at stocks."
Waller says much of that acreage may not come back to wheat. "Most farmers had good reasons to cut back," he said, "and many shifted to crops with better revenue opportunities. Texas acreage took a smaller hit, partly because so many Texas farmers graze winter wheat. Planted acreage for 2002, at 6.4 million, represents an increase, but harvested acreage was down to 2.8 million acres.
U.S. acreage declined from 75.1 million in 1996 to 60.1 million in 2002. Harvested acreage also declined in that period, from 62.8 million to 47.6 million.
Domestic production for the 2002/03 crop likely will top 1.6 billion bushels with beginning stocks at 772 million bushels and imports at 105 million bushels. Disappearance of that crop should include 1.2 billion bushels for the domestic market, 900 million bushels for export and about 467 million bushels in ending stocks.
Those projections, Waller said, should push prices to a $3.50 per bushel farmer average.
Projections for 2003/04 include a 573 million bushel carryover and an average farm price of $3.25 per bushel.
"Even with 573 million bushels, the supply will be tight," Waller said.
He said farmers should consider pricing early. "In most years, it’s a good idea to lock in a price on some wheat early," he said. "The exception would be years when production is significantly lower."
He said prices often rally in the fall, until December.
"Watch the market through the winter and be prepared to act when wheat gets to $3.50 to $3.80. It hits that almost every year."
Waller said growers should do their homework, evaluate production costs and determine what they have to get from the market."
Low stocks for grain sorghum, soybeans and corn "will help keep things tight," he said.
A good portion of the U.S. wheat crop will move into foreign markets, 26.2 million metric tons from the 2001/02 crop and 24.5 million from the 2002/03 production.
"A weakening dollar will help move our wheat," he said. "But we have competition. The European Union will subsidize exports to make up for currency differences. Also, the EU will try to move a big wheat crop. Recent flooding, however, could affect production and quality in some areas."
He said the players in the world market also have changed. The United States, Canada The European Union, and Argentina still rank as "major traders. But non-traditional competitors now include the Former Soviet Union, India and Turkey.
The next major factor affecting wheat price fluctuation will be planting weather. "A severe drought continues to hang over the wheat areas of the United States. It has moderated some but a good portion is still abnormally dry. Continued drought could cause problems into the fall."
Waller said the effect improved prices have on other countries’ planting intentions also will affect 2003-04 price prospects.