Separating from corn, wheat is taking on a life of its own.
The old-world grain is no longer tied to corn
Wheat prices were pulled lower with bearish news for corn in recent weeks, but a change is in the works, creating price optimism and profitable marketing opportunities.
"Wheat will take on a life of its own," says Frayne Olson, a North Dakota State University agricultural economist. Wheat will separate from corn, which has been the price driver for the entire grain and oilseed complex in recent years. It might already be happening, with December Chicago Mercantile Exchange wheat contracts higher in seven of the past eight trading sessions through Oct. 3.
"The wheat market is more liquid, and 40% to 50% of the U.S. crop is exported. That’s more than either corn or soybeans."
At the same time that corn and soybean news was bearish in USDA’s Sept. 30 Grain Stocks report, wheat surprised the trade with unexpected bullish news. As of Sept. 1, wheat stocks were down 12% from year-ago levels to 1.854 billion bushels.
"That’s the smallest amount of wheat since 2008/09," says Dan O’Brien, Kansas State University ag economist. This is due to strong summer feed use and strong exports.
"U.S. wheat use is anticipated to increase for the 2013/14 marketing year, with projected prices increasing," O’Brien says, noting that it’s the opposite for corn and soybeans.
Behind the newly found wheat optimism was a 10% jump in its commercial disappearance from June to August 2013 compared to last year at this time, according to USDA.
Feed and residual use was 414 million bushels this summer, up 38% from the 2007 to 2011 average. Exports were strong at 338 million bushels, up 20% from the four-year average. Food use was up slightly to 238 million bushels.
This bullish demand occurs at the same time 2013 production is down 6% from 2012, according to USDA’s Sept. 30 Small Grains report.
Assuming likely yields for the 2013 wheat crop, O’Brien forecasts an average U.S. farm price of $7.45 per bushel, but as high as $8.50 under a high export scenario.
In USDA’s September World Agricultural Supply Demand Estimates report, the average new crop farm price was forecast at $7.85 per bushel. On Oct. 3, the Chicago Board of Trade December 2013 wheat contract was $6.96 per bushel and $7.07 for May 2014. It’s not just price levels that are improving.
"Historically, we have seen a recovery in basis the first two weeks of October," Olson says, predicting that this year basis recovery will occur October to November because of the change in the Canadian marketing system. "That has fundamentally changed," he says. Now, the Canadian system largely mirrors the U.S., with farmers making their own marketing decisions.
Olson says that the wheat price outlook for 2013/14, even more than for corn and soybeans, will be determined by global supply-and-demand factors.
Global Game. "The wheat market is more liquid, and 40% to 50% of the U.S. crop is exported," Olson says. "That’s more than either corn or soybeans."
- November 2013