I don’t think there’s anybody on the planet who thought the wheat market could go as low as it did this past year.
But when it decided to go low, it did so with a great deal of passion. It headed right for $2.50 and just kept clawing away day after day till it got there. And just to punctuate its success, it decided to keep on going down. I should have taken a picture of my computer screen when it showed cash wheat in Dighton, KS at $2.20 a bushel. Who would have ever believed that? I hadn’t seen prices that low since 1977 when wheat in Dighton in February was $2.17 a bushel.
So here we are 40 years later and wheat has recovered almost 90 cents a bushel. Today I can sell wheat in Dighton at almost $3 a bushel.
The good news is that wheat has gone up. The bad news is that for most Kansas farmers, it’s still about $2 a bushel below cost of production. In short, for most wheat farmers, we’re going to lose about $100 an acre in producing wheat.
So where is the market headed? Over the past day or so, I talked to a number of wheat marketing specialists and got their opinions. And, as you’d expect, whatever you’re looking for, you’ll be able to find it.
For instance, former K-State Extension wheat marketing specialist Bill Tierney, now with AgResource in Chicago, says the lows are still in front of us. He’s thinking we’ll see even lower lows this coming wheat harvest while US ending stocks continue to bloat.
“Assuming trend yields, I look for wheat prices to fall to lower lows than last year at harvest,” Bill says.
Last year’s low was $3.85 on July 5, 2016. If those prices weren’t low enough, they were accompanied by a monstrous basis of $1.50 a bushel.
“Looking forward to the 2017 crop, I think $3.50 on the futures market is a reasonable level to expect based on these assumptions.”
Bill adds that global production among major exporters will match or exceed last year and global stocks will rise next year and exceed this year’s record.
“Increasingly, the size of the U.S. wheat crop is less and less relevant to global wheat prices. I also look for corn prices to start falling once the projected record Brazilian crop becomes available for exports.” Bill says.
OK, so much for the dark side of the wheat market. A more optimistic outlook is presented by E.G. Herl, grain buyer for Grain Craft flour mills in Wichita and Kansas City.
“I guess I’m not in the camp of expecting even lower wheat prices for the ’17 crop. I think the low is behind us.”
“For one, Kansas farmers planted only 7.4 million acres of wheat for the 2017 crop. That is the smallest acreage in 60 years and the second smallest in 100 years,” he says.
Plus, EG is expecting greater than normal abandonment for a number of reasons including poor stands in much of western Kansas combined with additional wheat being grazed out or cut for hay or silage. Also, yields are definitely going to be lower than they were last year.
In addition, the grain buyer says the strength of the U.S. dollar has been a real problem for U.S. exports. “But I don’t see how it can get much higher. And while the Kansas hard red winter wheat acreage is down, so, too, is the U.S. hard red winter wheat acreage. Without a doubt, the spring wheat acreage is also going to be down.”
Adding all these factors together, EG says our oversupply situation can tighten up pretty fast. “In short, the low is behind us,” he concludes.
Stay tuned.
Vance Ehmke and his wife, Louise, grow certified seed in Lane County.