Facing wheat prices hovering near the $4 range amid a massive world supply, U.S. wheat farmers could plant fewer acres this fall, according to analysts.
CBOT December wheat closed down one cent Tuesday to $4.01 2/5. But cash wheat prices have been pushed down to $2.80 in Colorado and in Kansas, the largest producer of winter wheat, because of the massive global wheat supply and weaker currencies in Russia, Ukraine and Europe, analysts say.
As a result, American farmers are forecast to plant 3% fewer winter wheat acres this fall, according to grain analyst Ben Buckner with the consultancy Ag Resource in Chicago.
“I expect fewer acres where the returns are the lowest - in the Dakotas, Colorado and in western Kansas," Bucker says, noting that these low prices are pressuring farmers who rent land the hardest.
For Kansas farmers, switching to other crops may be difficult because of limited soil moisture and input costs, according to Brian Linin, chairman of the Kansas Wheat Commission. Growing wheat with prices so low is getting more difficult, he says.
"I would estimate the break even on wheat to be a local cash price around $4.50 or 5.00,” he says. Linin says that government subsidies are not sufficient to make up for losses.
With prices so low, for farmers, “It’s about how much risk the bank is willing to take,” Buckner says. “If you own land and machinery already, it’s a little more attractive, but a lot of renters will be stretched to the very end of what they would do."
Although low cash prices may make it harder for wheat farmers to make ends meet, it is also making U.S. wheat more competitive on the world market, Buckner says.
“Compared to Russia and Canada, Australia and Europe, we are all about within $3 to $5 in price per metric ton; a year ago, we weren’t even close,” Buckner says. “Now, we’re finally competing for global market share."
However, in Bosse’s view, prices might see pressure to tumble even lower.
“U.S. hard red winter wheat is priced at $194 per ton, while Russia is priced at $176 per ton," he says. We won’t export much hard red winter wheat unless our prices drop.”
So what could turn wheat markets bullish again? Movement by funds, according to analysts.
“Everyone already knows about the huge supply, and funds are still holding a massive short positions that could be liquidated at any time,” Bosse says. “But to get funds to liquidate those short positions, we need a spark of bullish news."