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Watchers eye $7 wheat

02/09/2012 @ 3:36pm

Farmers probably don’t need to be in a hurry to sell wheat over the next few months since users seem to have plenty, say analysts. And the best marketing opportunity, they believe, may come around midsummer if heat and drought send the corn market soaring.


Or perhaps even sooner if Midwest spring planting gets disrupted by either wet or dry weather.


Timely wheat sales during any summer corn rally would help producers sidestep a repeat of last fall when wheat prices tumbled on pressure from the corn harvest.
Another thing to watch this spring and summer is whether livestock producers start feeding more wheat as corn supplies tighten ahead of harvest. Analysts expected such feeding last fall, but the amount of wheat ultimately used as feed was disappointing.


Ample wheat worldwide
The general backdrop for wheat over the next couple of months is an ample supply but good demand. U.S. wheat supplies are just 1% above last year, but worldwide stocks are at record highs, up roughly 2.3% from a year ago. A good portion of world wheat, however, is low to mid quality (and this includes feed quality) after some weather problems around the globe. Fortunately, world demand, including feed demand, is good – up about 4.2% from a year ago.


And foreign demand for high-quality U.S. wheat should remain good through the spring, as Russia is expected to suspend its aggressive wheat exports, says analyst Louise Gartner at Spectrum Commodities in Ohio. After roughly a year of little to no exports from mid-2010 to mid-2011, Russia stormed back last summer with deep discounts on its export wheat. But once it reaches its export goal around April, Russia should stop shipping, says Gartner. That will leave a better export window for U.S. wheat exports until midsummer, when Russia is expected to start shipping its new crop. (Although, the overall 2012-13 export pace out of the Black Sea could be crimped by a short crop in Ukraine.)


$7 Wheat?
U.S. wheat farmers were disappointed last fall when prices dropped. But overall, USDA sees a good chance for an average U.S. price this marketing year (ending June 30) above $7 a bushel – roughly 35% above the average of the past two years. Most of the $7-plus prices may be behind us, however. USDA’s first estimate of 2012-13 (July-June) prices will come May 10. Until then, a rough projection using futures, while subtracting out basis trends, suggests a Kansas cash price averaging around $6.84 over the coming year, says Kansas State University economist Dan O’Brien.


Separately, Michigan State University ag economist Jim Hilker crunched some numbers this winter. His February projections suggested at least a 50% chance for Chicago July futures to expire above $6.81 and December futures above $6.98.


Futures prices reflect what’s already known: Plains hard red winter wheat farmers boosted plantings by about 6% last fall despite dry weather. 

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