There are reasons to be optimistic about this year’s wheat crop, but there are also several wild cards that could dampen price expectations. Lock in some early sales if they cover your costs.
Several factors in play could lead to a positive year
Wheat growers are asking themselves the same question that every farmer asks annually: Will it be a good year for my crop? Experts appearing on "U.S. Farm Report’s Market Roundtable" this winter are cautiously optimistic for wheat prices this year.
"I think wheat is a little bit too cheap and will probably bounce back again," says Mike Florez of Florez Trading.
Joe Vaclavik of Standard Grain says carryout looks to be a silver lining.
"Among the three major crops, wheat is the only one that the USDA is actually projecting our carryout to shrink in 2013/14," he says. "We’re not looking at anything phenomenal in terms of wheat carryout. It’s really kind of a run-of-the-mill type number, but I don’t see it as being extremely bearish to a point that we’ve got to take wheat down to the same price as corn or within a dollar of corn."
Factor in soybean prices before becoming too optimistic, Vaclavik adds.
"Short term, I think it’s the biggest wild card out there because we’re still not 100% confident in the South American situation," he notes. "A lot of it is going to hinge on that. We’ve got projections for record crops now, but it’s not in the bin. I kind of think we’re going to stay in a choppy market for a little bit."
Supply versus demand. The most accurate projections come only after unraveling the intricacies of global supply and demand, which has many players and is constantly in flux, says Ed Usset, grain marketing specialist with the University of Minnesota.
"On the one hand, I like the demand story," he says. "We like to hear about good exports, and demand can drive a market higher. But then you’ve got Canada and other places where we’ve got ample stocks and supplies."
Usset recommends farmers assemble a marketing plan with the price terms they want based on production costs. Lock in some early sales if they cover your costs, he says.
Typecasting. Across the five types of wheat for which USDA provides regular updates, acreage is expected to hold or gain, says Brian Williams, a Mississippi State University Extension economist. about 45.1 million acres of wheat were harvested in 2013.
- Hard red winter wheat might steal back some corn acres in the Plains due to relatively favorable prices.
- Hard red spring wheat acres should hold steady or slightly grow.
- Soft red winter wheat could lose significant acreage in the eastern Corn Belt because of competition with soybeans. Some states, such as Mississippi, could see an increase in acres where wheat is double-cropped behind soybeans, Williams says.
- White wheat might maintain acres.
- Durum wheat acres could jump because it typically trades at a pre-mium to hard red and soft red wheat.
Overall, wheat will transition from record highs spurred on by the 2012 drought back into a more comfortable position, William notes.
"With an increase in expected acreage next year, along with favorable planting conditions this fall, I expect the supply outlook to be much better for the 2014 crop," he says.
You can e-mail Ben Potter at email@example.com.
- February 2014