Wheat prices have benefited from strong rallies recently and because of tightening supply and a slightly improving demand picture, Farmer Mac expects them to remain strong throughout 2018.
“The wheat supply picture continues to improve for U.S. producers,” says Jackson Takach, Farmer Mac economist an author of the The Feed. “A difficult crop year in 2017, followed by relatively poor conditions in the winter wheat crop in 2018, has caused a significant decline in production.”
Additionally, the drought conditions that continue to plague Kansas, Oklahoma and Texas have hurt winter wheat yields while cold and dry conditions in North Dakota and Montana have not only hurt yields but also delayed spring wheat planting, Farmer Mac reports.
According to Takach, global wheat producers are also experiencing difficult growing conditions, most notably in Russia and the Black Sea region, where a frigid spring has hurt winter crops and delayed spring planting.
USDA expects demand to increase for all categories of wheat in 2018.
“Lower corn and soybean product costs diminished the use of wheat as a feedstock alternative, but rising grain prices in the first quarter helped establish a base for wheat feed usage,” Takach says adding that the U.S. could pick up additional export sales because of challenges in the Black Sea region.
Wheat markets are reflecting the improving supply and demand picture. Average wheat cash prices are up more than $1.50 per bushel since bottoming out in 2016, Takach says. USDA predicts an average farm price of $4.70 per bushel in 2018.
Still, Takach warns production and quality challenges could limit how well producers can take advantage of higher prices.
“The benefits of improved markets are likely to be highly regionalized and based on local growing conditions,” he says.