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Wheat Growers up Seedings for Cash Flow

January 19, 2012
By: Fran Howard, AgWeb.com Contributing Writer
Wheat in Drought
  

Despite the worst single-year drought ever in the southern plains—which has yet to show significant signs of letting up—wheat producers are hoping for, or perhaps even banking on, more rain.

Seeded acres of 41.9 million for winter wheat are 3% larger than a year ago, while hard red winter wheat acreage is up 6% to 30.1 million acres, according to USDA’s Winter Wheat Seedings report.
 
Growers throughout the United States upped seeded acreage in all but a few states. Some of the biggest increases in winter wheat came in Kansas (up 8%), Oklahoma (up 8%), Texas (up 11%), and New Mexico (up 6%), where drought has been most severe.
 
"A lot of growers were in a very dry situation coming out of last year’s crop," says Dan O’Brien, agricultural economist with the Northwest Research Extension Center, Colby, Kan. "Many didn’t get a good spring wheat crop and if they were able to get a winter crop in—and if they have moisture to get the crop through the winter—it will be better than waiting until spring wheat harvest to bring in income."
 
Timely fall rains allowed growers in the southern plains to at least get wheat seeded, but analysts expect a fair share of the winter wheat crop in Texas, New Mexico, Oklahoma and parts of Kansas to be used for grazing livestock and say harvested acreage will depend entirely on additional moisture over the next few months. Some calf-cow operators hope to graze their herds on winter wheat stands prior to the crop entering into its reproductive cycle.


Wheat prices no longer reflect human consumption

"Wheat has been forced to price more like a feed," says Tim Emslie, research manager for Country Hedging, Saint Paul, Minn. "Wheat and corn prices decoupled over the past year; wheat stopped pricing for human food consumption and started pricing like a feed." With the current ratio between corn and wheat prices now at historical lows, Emslie says wheat prices will have to move higher if there is a rally in the corn market.
 
"The basis in Salina, Kan., is the strongest since 2007," says O’Brien. "You’d expect a narrow basis to be a good indicator of strong usage, but exports are so-so at best." Supplies of high-protein wheat are still relatively tight in the United States, causing issues for some millers, but exports are softer than they were a year ago, O’Brien notes. That could change, however, if problems persist in the Black Sea Region, where drought has also taken hold.
 
Some analysts expect Ukraine’s winter wheat production to drop to 12 million metric tons, down from 16 million metric tons in 2011, and yield to be reduced by 40%. A reduction that deep could reduce Ukraine’s exports to the Middle East and North Africa, leaving Ukraine with only enough wheat to meet domestic consumption.
 
However, Casey Chumrau, market analyst for U.S. Wheat, says that with Black Sea winter wheat still dormant, it’s premature to say yield losses will be that severe. Ukraine growers won’t be harvesting wheat for a few months, which allows time for improved precipitation patterns.
 

World stocks piling up

"World stocks are building," says Emslie. "That’s what happens when everyone has a decent crop." The 2011-12 marketing year saw large crops in Canada, the U.S. northern plains, and western Australia. "Based on world fundamentals, if everyone has good crops this year, we’ll see lower wheat prices," says Emslie. "If Ukraine and Russia have better than expected crops, the U.S. farmer will continue to be punished for planting wheat." He expects 2012 wheat prices to average near $6.25, compared with prices closer to $6.05 today.
 
USDA increased global ending stocks of wheat by 1.5 million metric tons to 210 million metric tons in its January World Agricultural Supply and Demand Estimates. USDA also increased U.S. exports of wheat to 950 million bushels, a 25 million bushel increase from its previous report.
 
The Department reduced feeding estimates from 160 million bushels in the December report to 145 million bushels in its latest report. Moving forward, Emslie expects USDA to continue to increase exports, by another 25 million bushels or so and to return feeding estimates to the 160 million bushel level.
 
O’Brien cautions that two years ago when everyone was sure wheat prices were going to be abysmal, prices soared when it became apparent that the Black Sea Region was facing dramatic production losses. "But absent a supply shock in 2012, we have had enough buildup in stocks that they are almost burdensome," O’Brien adds.

 

For More Information
Read more wheat news.


 

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RELATED TOPICS: Weather, Wheat, Marketing, Crops, USDA, drought

 
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COMMENTS (2 Comments)

SBCF - WA
By preparing a cash flow projection you have information to help make decisions in advance of being faced with a possible financial crisis. The economy has been tough these past few years and it's important to track and understand your cash flow. Farmers are a perfect example of seasonal businesses. I have detailed information on Seasonal Businesses and how to set up Cash Flow Projections at www.smartbusinesscashflow.com.​
11:04 AM Jan 28th
 
SBCF - WA
By preparing a cash flow projection you have information to help make decisions in advance of being faced with a possible financial crisis. The economy has been tough these past few years and it's important to track and understand your cash flow. Farmers are a perfect example of seasonal businesses. I have detailed information on Seasonal Businesses and how to set up Cash Flow Projections at www.smartbusinesscashflow.com.​
11:04 AM Jan 28th
 



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