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2013 Outlook: Wheat Prices to Tag Along with Corn

November 5, 2012
By: Nate Birt, Top Producer Deputy Managing Editor google + 
Wheat Dollars
  

Editor's Note: For seven weeks, AgWeb.com is taking a look at experts’ projections for a variety of commodities in 2013.

Today, experts Ed Usset and Brian Williams reflect on this year’s wheat crop and share their expectations for the future.

Tell me a bit about yourself and your role at your university. Why is wheat a commodity that interests you?

Usset: I am a grain marketing specialist for the University of Minnesota. I spent the first dozen years of my career as a wheat buyer for several major flour mills–wheat is a much more interesting commodity than corn or soybeans.

Williams: I am an assistant extension professor at Mississippi State University. My primary specialty is commodity marketing, specifically for corn, soybeans, wheat, sorghum and cattle. In addition to commodity marketing, I also work on farm management, production economics and some policy.

One of the biggest reasons that I am interested in the commodities I cover, including wheat, is because I grew up around them. I was born and raised on a farm in Nebraska where my parents grew each of the commodities I cover. I think the best way to summarize why I cover wheat is that wheat played an important part of shaping me into who I am.

How would you characterize this year’s wheat crop and the market for the commodity, both in the U.S. and globally? What, if anything, surprised you?

Usset: I am not a traditional supply and demand analyst (other respondents will do a better job of an "inside baseball" look at the numbers worldwide). I know that wheat supplies worldwide are paring back and that in general, the balance of supply and demand is becoming much more interesting.

One note of interest: a high quality and high protein crop has cut protein premiums to almost nothing. There are days at the MGEX that 15% protein wheat trades at a discount to 13% protein. This is not unprecedented, but it is uncommon (it happens about one in 10 years). It stands out because over the past three years (particularly with the 2009 and 2010 HRS crops), it was not uncommon for there to be a $2/bu. premium from 13% to 15% protein.

Williams: Both total wheat production and consumption in the U.S. are lower this year. Wheat only saw a small hit in yields as a result of the drought when compared to other crops with average yields 2.6 bu/acre lower this year than last. A good portion of the wheat crop matured before the drought took hold in the Midwest, minimizing the drought’s impact on yield.

While wheat disappearance for food and seed are slightly higher than last year’s totals, exports saw a sharp decline. Feed and residual use is seeing significant growth going into next year. Much of the increase can be attributed to higher corn prices due to this summer’s drought causing wheat to become a feasible alternative to corn.

Globally, wheat production did not fare as well. Wheat production is projected to be lower in Russia, Australia and the European Union as drought persists in each of these regions. Global wheat use is also projected to be lower.

Walk me through your wheat forecast for 2013. What should producers, sellers and buyers know now about the market? What can they do to be better prepared for the year ahead?

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