Thanks to government subsidies, the U.S. spring wheat crop might be seeded on fewer acres than expected, a North Dakota analyst says.
“The loan rate doesn’t make a guy want to plant wheat very much,” Randy Martinson of Fargo, North Dakota, said in an interview after a speech to the Manitoba Corn Growers Association’s annual corn school.
Minneapolis spring wheat futures for 2005-06 are around $3.30 US per bushel, which works out to about a $3 per bu. cash price in North Dakota
That price is about equal to the loan rate for wheat for 2005-06, which means wheat is priced as low as it can go, Martinson said.
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The loan rate is an American subsidy program that gives producers an advance payment for their crops. If the market price falls beneath the loan rate, the producer can forfeit their grain to the government and keep the money.
Martinson said North Dakota grain elevators are worried that too many producers are planning to avoid wheat this spring and are offering aggressive basis levels to try to buy acres. Recently elevators in northeastern North Dakota have been offering basis of 30-40 cents per bu. over the futures. That is about 50 cents per bu. more than normal
However, that hasn’t been enough to entice growers away from corn and soybeans, Martinson said. Those crops suffered from the cool summer of 2004, but most farmers in his area hope for better corn and soybean crops this year. For wheat area to recover, futures prices would have to signal a much better outlook.
“If we get the futures back up to that $3.75 per bu. price, we’re going to see more acres,” Martinson said.
He also said many producers are still optimistic about corn prices, and so is he. There may be a glut of corn on the market, but low prices have kindled a demand fire that will consume most of it.
Old crop corn futures might regain the $2.20 level, but “we think there’s a lot more chance of an upside with new crop.”
As of Feb. 18, March CBOT corn futures were $2 per bu., with May at $2.07.
New crop futures were higher with December corn at $2.49 per bu.
Martinson said he expects to see new crop corn trade above $2.60 per bu. and “that’s where we want to start selling.”
New crop prices are higher than old crop because it will be difficult for American producers to grow another huge crop like in 2004-05. However, Martinson said he is urging farmers to start locking in corn prices once they reach $2.60 because there is a chance American producers will get lucky with production again.
“If we produce like we did this year, there’s going to be a lot of corn out there,” Martinson said.
“At that price ($2.60 to $2.70) we have to do something.”
