Kim Anderson
OSU Professor & Extension Economist Dr. Kim Anderson discusses wheat prices at the 2017 Rural Economic Outlook Conference.

Wheat price outlook: A lot of big IFs

World wheat ending stocks were a record 10.3 billion bushels.

IF certain market conditions (Big IFs) are met, June 2019 Oklahoma and Texas wheat price will be in the $5.50 to $6.00 range. The IFs include USDA’s supply and demand estimates (WASDE) and the quality and quantity of U.S. (mostly Oklahoma, Texas, and, Kansas) wheat production.

The first IF is the required market situation. Coming into the 2018 wheat harvest, there was an excess of U.S. and world wheat in storage. The U.S. hard red winter (HRW) and hard red spring (HRW) wheat 2017/18 marketing year ending stocks were 772 million bushels, compared to a 10-year average of 579 million bushels. World wheat ending stocks were a record 10.3 billion bushels.

The hard wheat exporting countries’ (Argentina, Australia, Canada, Russia, Ukraine, and the U.S.) ending stocks (only HRW and HRS for the U.S.) for the 2017/18 t marketing year were 1.695 billion bushels, compared to a 10-year average of 1.55 billion bushels.

Although the worldwide market had an excess of hard wheat (and all wheat), it had a shortage of milling quality wheat. In mid-June, the Kansas City market 12.5 percent protein wheat basis was $1.57, compared to 75 cents in June 2015.

           

HIGH AVERAGE PROTEIN

Between mid-January, 2018, and mid-June, 2018, Oklahoma and Texas cash wheat prices increased from $3.50 to $5.20. The price increase was mostly due to a 2018 Oklahoma and Texas wheat harvest containing an average protein above 12.5 percent and an average test weight above 60 pounds, with relatively poor old crop wheat in the bins.

In the November 2018 WASDE (World Agricultural Supply and Demand Estimates), 2018/19 marketing year world ending stocks are projected to be 551 million bushels less than 2017/18 marketing year ending stocks. This projection implies that more wheat will be used during the 2018/19 marketing year than will be produced.

Ending stocks for the major hard wheat exporting countries are projected to decline 405 million bushels. This projection implies that more hard wheat will be used during the 2018/19 marketing year than will be produced.

IF the USDA WASDE projections are correct, the wheat market will enter the 2019/20 marketing year with a greater shortage of milling quality wheat in the bin than at the beginning of the 2018/19 marketing year.

 

POTENTIAL HIGHER PRICES

IF less milling quality wheat is available at the beginning of the 2019/20 wheat marketing year than at the beginning of the 2018/19 marketing year, and IF wheat demand for quality is the same (2018/19 vs. 2019/20), then prices for milling quality wheat would be expected to be higher than June 2018 wheat prices.

There are also IF’s relative to quality and quantity. The lower the production, the higher the price. In that a shortage of quality wheat is expected, and the Oklahoma and Texas wheat crops are the first exportable crops to be harvested, quantity (above average production) probably would not have a negative price impact until July or August.

Quality can have a big impact on prices. The market is expected to be short of milling quality wheat. Within reason, relatively low protein wheat may still be better than the old crop that is in the bin.

However, high quality (12.5+ percent protein and 60 pound + test weight) should result in a relatively high premium (basis), and prices near $6.00. A $1.00 to $1.50 price difference for 12.5 percent compared to 11 percent protein wheat is expected.

IF USDA’s WASDE projections are correct; IF 2019 harvested hard red winter wheat averages 12.5 percent protein or higher; and IF test weight averages 60 pounds or higher, June 2019 Oklahoma and Texas wheat prices are expected to be between $5.50 and $6.00.

TAGS: Outlook
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