Wheat prices have been slumbering for so long they seem to be in a coma, broken only by farmers’ nightmares of never making a profit with the crop again.
But adviser Mike Krueger thinks there’s a chance that could change this year, giving wheat more upside potential than oilseeds.
“I think … wheat could be the sleeper,” said Krueger of Fargo, North Dakota’s the Money Farm, speaking at CropConnect Feb. 16.
“I do think that things are starting to change a little bit.”
Krueger said he thinks the present low wheat prices, which have left southern Plains U.S. farmers with US$3 per bushel hard red winter wheat cash prices, is due to the world producing four record crops in a row.
Yields have been rising and stocks have been built high.
But he said it isn’t safe to assume another world bumper crop because weather is never predictable. As well, much of the stored American HRWW crop, which helps set the world price for milling wheat, is garbage.
“It’s just this big glob down there,” said Krueger about widespread quality problems with the 2016 crop.
“Our HRWW is basically (severely damaged). We’ve got this big ball, this big mass of low protein, relatively low quality wheat sitting in piles in commercial storage,” said Krueger.
“That is never going to go into milling channels and is not going to find its way into export channels. It’s going to have to go into feed.”
If that happens, that’s millions of tonnes of supply taken out of the milling wheat stockpile, which would help boost prices.
Repeated bumper crops in the Black Sea region also aren’t a safe assumption. Production was good in recent years, but before that there was a dreadful drought that caused wildfires across Russian farm country and a haze of smoke that enveloped many parts of the nation.
Weather in Eastern Europe is just as unpredictable as in North America.
The damage to HRWW has suppressed futures prices for that type of wheat and boosted prices for hard red spring wheat, Krueger said.
Buyers are seeking protein and quality better than they can get with HRWW. That sends them into the HRSW market.
Presently, there is almost a $1 bushel premium for HRSW versus HRWW due to quality, with March Kansas HRWW at about US$4.60 and Minneapolis HRSW at about $5.50.
But generally, wheat prices have been trending down since August 2012, when HRWW prices hit a peak of $9 per bu.
Since then, it has ground down to less than half that value to just above $3 per bu. and then recovered to slightly higher levels since.
Spring wheat has stayed above $5 per bu.
This year should see about four million fewer acres of U.S. wheat as farmers stampede into soybeans, Krueger said. The acreage reduction, coupled with a return to normal yield after record breaking high levels last year, should result in a significant production decrease.
U.S. wheat stocks are high now due to what Krueger called “God-awful exports.”
The best factor still at work in global wheat markets is that demand has remained strong and was not killed by high prices earlier this decade, he said.
If production somewhere in the world takes a hit this year and U.S. exports rebound, the new crop stocks situation shouldn’t be nearly as bad as now. From about 1.1 billion bu. this year, year end stocks could fall to 800 million bu.
“That is not a bearish number,” said Krueger. He also noted that the southern Plains have little snow, so a cold snap before spring could cause significant damage.
Many farmers don’t see a way out of low wheat prices right now, but Krueger said with the demand situation good and a number of production problems possible around the world, the future might be brighter than people expect.