Wheat planted acres are down, yields are looking good, production is expected to be less, and prices are lower than this time last year. Four record world wheat crops in a row have resulted in record world ending stocks — and low prices.
A return from record yields to slightly above average or average yields is not sufficient to result in higher wheat prices. Higher ending stocks are expected to offset a reduction in production.
U.S. 2017 wheat production is projected to be 1.9 billion bushels, compared to 2.3 billion bushels in 2016. That 17 percent decline in production is a combination of an 8 percent decrease in planted acres and a 9 percent decline in yields. Note that with a 9 percent decline in yields, yields in 2017 are still projected to be average or better. Projected lower U.S. wheat production is expected to be partially offset by a 183 million bushel increase in U.S. beginning stocks.
LOWER FOREIGN PRODUCTION
U.S. hard red winter wheat production is projected to be 720 million bushels, compared to 1.05 billion bushels in 2016. Lower production is a function of 12 percent fewer planted acres and a 20 percent decline in yield. Yields are projected to be slightly above average.
Foreign wheat production is projected to be lower, mostly due to 2017/18 yields being below 2016/17 yields that were record or near record. Foreign wheat production is projected to be 24.6 billion bushels, compared to a record 25.3 billion in 2016/17.
World ending stocks for the 2017/18 wheat marketing year are projected to remain near 9.1 billion bushels, which implies no change for projected 2016/17 marketing year ending stocks.
Projected lower 2017/18 wheat marketing year U.S. ending stocks are expected to result in U.S. prices averaging 40 cents to 50 cents higher than 2016/17average prices.
At this writing, wheat may be forward contracted for harvest delivery in most of Oklahoma for between $3.39 and $3.62. In the Oklahoma and Texas panhandle region, wheat may be forward contracted for harvest delivery for between $3.57 and $3.72. In mid-April 2016, wheat could have been forward contracted for about $4.20.
Since June 2008, U.S. wheat prices have averaged $5.99, and Oklahoma and Texas prices have averaged about $5.85. For the 2016/17 marketing year, U.S. wheat prices have averaged $3.86 and Oklahoma/Texas prices have averaged $3.26. Oklahoma and Texas prices are currently about 60 cents less than the average U.S. price.
With current wheat prices, there is more upside price potential than downside price risk. The bad news is that, during the last year, prices have been as low as $2.90, and current cash prices are in the $3.20 to $3.40 range.
Using December’s low price of $2.90 as the price floor, and a 2017 forward contract harvest price of $3.60, there is about 70 cents downside price risk. If you consider the government loan program with a loan price of $3.15, the downside price risk is 45 cents.
Foreign and U.S. wheat yields and production are expected to be less than 2016/17 yields and production, yet yields and production are still expected to be average or better. With record ending (beginning) stocks, average yields and production are insufficient for significantly higher prices.
For Oklahoma and Texas wheat price to go above $5, world production needs to be less than 26 billion bushels. Current crop conditions and production expectations just don’t indicate that $5 wheat will happen before October 2017 — and probably not until October 2018.