Wheat prices are going to have to move higher and offer farmers a profit.
That’s the view of Allendale Inc. market analyst Joe Victor, who expects to see the market “buy-in” acres of wheat this winter to fight the flight to corn.
“We believe that the (grain) trade is starting to get the hint that now the price has come down so much, it’s going to require a much sharper pencil to show a profit margin for wheat in 2009,” said Victor.
“We believe that the worst (in prices) is behind us. Now we have to give an incentive to the farmers to go out there and plant a new crop for 2009. The only way we can do that is to increase prices. We can’t afford to reduce acreage.”
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Each winter, people talk about the market buying acres of certain crops. That describes the phenomenon of certain crop prices rising because of commercial buyers’ fears and speculators’ hopes that too little of those crops will be planted and a shortage will develop after harvest.
Victor expects to see the market buy wheat acres by causing wheat prices to increase more than corn prices, or decrease by less.
Now, corn prices provide enough of a premium over wheat that it encourages American farmers to plant more corn and less wheat. High prices last spring caused many farmers who usually grow only corn and soybeans to also put in wheat acres. But as wheat prices have fallen, so too has the desire of non-traditional wheat growers to seed it in 2009.
“When the price was high, even the most unskilled farmer globally was growing wheat,” said Victor. Now it’s going to have to go back to the skilled (wheat) farmers.”
At first glance, wheat might not seem to be in short supply. The United Nations Food and Agriculture Organization recently boosted its estimate of overall world 2008 cereal grains production by 5.4 percent, but wheat production increased by more than double that percentage, to 682 million tonnes.
However, world consumption has also been increasing and stocks, while large in nominal numbers, are low in relation to consumption. If farmers seed less wheat in 2009 than they did in 2008, stocks could quickly disappear, some believe.
The International Grains Council expects farmers to cut wheat acreage by 1.6 percent in 2009 because of falling prices and high input costs.
Victor said some estimates of 2009 wheat production are assuming a three to five percent reduction in acreage. Allendale anticipates American farmers will reduce area by one to two million acres, with most of that switched into corn.
The combination of reduced acres, generally shrinking stocks-to-use ratios and increasing consumer demand should mean wheat will see a bigger rally this winter than its sister cereals.
“The demand isn’t going to be down three to five percent, and cheaper prices are stimulating more demand,” said Victor.
