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Wheat Journal: Acreage Battle Likely to Last through Spring

March 26, 2011
Low wheat stocks could set the stage for higher prices if weather hampers yield.  

USDA’s February World Agricultural Supply and Demand Estimates (WASDE) report revealed basically bullish corn and neutral soybeans and wheat, says Oklahoma State University Extension agricultural economist Kim Anderson.

Soybeans and wheat just can’t let corn take any of the crop acres. Some analysts predict that the price battle for crop acres will go through March and into April. Once producers have corn, soybeans and spring wheat planted, the land price war will be over until the 2012 crop, Anderson adds.

The factors supporting wheat prices are competition for cropland; cold, dry conditions in Western parts of the hard red winter wheat area; massive snow in Canada that may delay or prohibit spring tillage and planting; and countries buying wheat to insure against a food shortage. Within the next few months, most of these factors may be null events. If that happens, wheat prices could easily decline by $2 per bushel.

If U.S. wheat production is below 2.05 billion bushels this year and world production is below 23.5 billion bushels, prices are expected to remain near current levels. Wheat ending stocks are sufficiently low that world production below 22 billion bushels and U.S. production below 1.9 billion bushels could result in prices reaching spring 2008 levels. "Of course, a large crop could result in Kansas City Board of Trade wheat prices falling below $6," Anderson says.

Markets React to Spring Weather

Big swings in corn and soybean prices made the first week in March another wild week in the grain markets. These swings gave volatility a whole new meaning and are putting pressure on acreage decisions, says Jerry Gulke, president of the Gulke Group. 

With planting season right around the corner, the acreage battle is intensifying.

Premium wheat is in short supply, Gulke says. "The market is looking for good protein wheat and there is hardly any around."

This shortage of good-quality wheat is helping push wheat prices up and make farmers consider it as another option. "We’re seeing wheat come back big-time," he says. "Suddenly, wheat is competing with corn and soybeans."

The key now, Gulke says, is whether we’re going to get the crop in the ground. And it does not look like this year will be an early spring.

Gulke says a lot of weather forecasters are saying that with La Niña still lingering, the odds of getting a less-than-average crop this year for U.S. corn is approaching 70%. "It’s not 50/50 anymore," he says. "It’s going to boil down to weather again."

Environmental Risk Insurance

Recognizing that there are environmental risks in farming that are not typically addressed by standard insurance programs, the National Association of Wheat Growers (NAWG) is partnering with Intercorp Inc., a veteran insurance program management firm, to offer environmental insurance coverage for wheat farmers.

Most farms have a coverage gap in their property and liability insurance coverage created by the absolute pollution exclusion, according to Intercorp. Due to this exclusion, standard property and liability insurance policies don’t cover claims associated with pollution incidents, such as fertilizer and pesticide clean-up costs or the accidental release of fuel or chemicals into the soil from an above-ground storage tank.

The new program offers coverage for on-site and off-site cleanup, third-party liability for bodily injury and property damage for pollution conditions, legal defense costs and coverage for aboveground storage tanks.

In addition, growers will receive a self-administered environmental assessment designed to pinpoint how they are managing environmental exposures and to recommend improved practices.

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FEATURED IN: Farm Journal - Early Spring 2011

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