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Wheat: A 2013 market leader?

If 2012 was the year of market leadership by corn, 2013 could be the year of wheat leadership. The same 2012 drought that ignited corn prices last summer is likely to support wheat prices this year.

As winter started, the market saw pressure on wheat prices. Some foreign buyers are looking elsewhere, for cheaper wheat. That caused USDA to trim 50 million bushels off U.S. wheat exports in its December estimate. And U.S. winter wheat acres are said to be higher than a year ago, perhaps around 2.1% to 2.2%. But last fall, during planting, traders were looking for an even larger increase, around 3%. And much of the Plains wheat was planted into dry ground that never saw much rain. The result is that wheat went into dormancy with record-low crop conditions, and that has made the wheat complex bullish.

There's still time for bearish spring rains to improve the wheat crop when it comes out of dormancy. But any spring rains may depress 2013-crop corn prices more than 2013-crop wheat, keeping wheat futures above corn.

Also on the bearish side for wheat, there's time for northern farmers to boost their spring wheat acres, but some of them are looking at corn instead. It's estimated that North Dakota will boost its corn acres by nearly 20% this year, and nearly 100% over 2011. If far northern corn farmers can eke out 150 bushels per acre from their corn, they stand to make about $115-$120 more per acre than if they harvest 50-bushel spring wheat, says veteran Kansas City grain analyst Sid Love.

Nationwide, corn acres are expected to rise about 2.1% to 2.3% percent, as farmers see corn as more profitable than soybeans. Love estimates that farmers can make roughly $75 to $115 more per acre in 2013 with corn versus soybeans.

As for leadership, Love and Ohio analyst Louise Gartner see a good chance that wheat could be the market leader around February-March -- before any big weather news hits U.S. winter wheat harvest or corn planting. By the February-May period, there is expected to be little wheat left to export from Europe, Argentina, Australia and the Black Sea, providing good underpinnings for U.S. wheat.

Corn will also have its support, in the form of tight U.S. supplies. By September, pre-harvest corn supplies are expected to be about 35 percent smaller than the tight supplies seen last September, according to USDA's carryover estimates.

In contrast, if U.S. wheat exports don't pick up, U.S. wheat carryover at the end of May could actually be a little higher than last May. But U.S. supplies of higher-quality wheat are tight. USDA expects a nearly 14% year-over-year drop in old-crop hard red winter wheat carryover by May 31.

Corn supplies are tight, and that has caused livestock producers to look at wheat as a feed. But with the U.S. and Canada as virtually the sole suppliers of high-quality wheat this year until at least mid-summer, high prices will be needed to ration those stocks. "High-quality wheat has to remain high to keep it out of the feed channels," says Gartner, of Spectrum Commodities.

The U.S. grain market, with wheat as a leader due to good foreign demand, looks fairly predictable until at least March. But after that, a continuation of the drought, or heavy drought-breaking rains, would likely impact corn futures more than wheat, making corn the market leader.

"Corn was the leader on the way up, and will be the leader on the way down," says Love. Eventually, as poor wheat crops in Argentina, Australia, Europe and the Black Sea recover, wheat prices will see pressure. "The problem with wheat is that it's grown everywhere," says Love.

Another factor in corn's favor is that USDA is likely to lower 2012 harvested acres. It didn't happen in the December report, but could occur in January. Gartner notes that USDA probably missed some corn acres that went into silage instead of grain.

Andre Stephenson is a marketing contributor for and Successful Farming magazine.

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