LUBBOCK — Wheat prices are lower than any grower would like, and their upside potential is at best a mixed bag. Still, agricultural economists at three land-grant universities are optimistic about higher long-term prices.
“Wheat prices this summer were the lowest they’ve been since the summer of 1991,” said Dr. Mark Waller, grain marketing and policy economist with the Texas Agricultural Extension Service.
“Prices reached a seasonal low in August-September, but rallied substantially faster that I expected in light of the current U.S. supply-demand situation and the large expected carryover stocks for the 1998-99 marketing year. Tight world wheat supplies, expectations of smaller U.S. acreage and weather problems in Oklahoma and Texas helped prices bounce back.”
Although the current U.S. supply-demand situation seems burdensome (USDA now projects 1998-99 ending stocks of 902 million bushels) more subsidized sales of U.S. wheat could support prices, the economist said.
“Overall, the world economy isn’t as strong as last year’s, but people still need to eat and our government knows we need to sell grain,” Waller said. “As a result, I think we’ll see more subsidized wheat sales this year, and that will help both demand and prices through the winter and into spring.”
The outlook for world wheat production dropped in November, said Kansas State University grain marketing analyst William Tierney. This suggests global wheat stocks in the 1998-99 marketing year could end up the second lowest in almost 40 years, he said.
“Concern about low global stocks may partly account for surprisingly strong July `99 futures prices in Kansas City this fall. The projection for lower world wheat production includes less U.S. wheat production,” Tierney said. “Industry analysts are now looking for 3 million to 5 million fewer U.S. acres at harvest during the 1998-99 marketing year.”
Despite predictions for a significantly smaller Soviet crop in USDA’s recent World Board forecast, Tierney believes, world wheat production may come in at about 588.3 million metric tons; 23 million metric tons less than the record 1997-98 world crop.
“Even though November’s U.S. wheat export commitments were the fourth lowest on record, expectations for smaller crops in the European Union and other major wheat-exporting nations could put a positive spin on wheat prices,” he said. “Current odds favor higher 1999 futures prices, following a harvest low of $3.25 to $3.40 per bushel.”
Even so, USDA now projects a 1998-99 average market price of only about $2.65 per bushel, said Dr. Kim Anderson, Oklahoma State University Extension ag economist-marketing.
“Producers won’t likely see $3.65 wheat until U.S. wheat ending stocks drop at least 310 million bushels. For that to occur, the 1999 wheat crop would have to total less than 2.1 billion bushels — a 20 percent drop from 1998’s 2.56 billion bushel crop,” Anderson said. “Unless poor growing conditions significantly reduce the U.S. or world wheat crops, I wouldn’t look for $3.65 wheat again until at least the year 2000.
“So, producers who can afford storage should consider holding a portion of their crop in order to capitalize on any price rebounds that occur.”
Waller said it’s not too early for producers to develop a 1999 marketing plan and set price goals.
“Unless the supply-demand situation changes substantially, prices should remain relatively low for the rest of the marketing year. A winter price rally will hinge on better exports,” he said. “Even with less U.S. acreage forecast for 1999, producers may not see higher prices next year unless a supply problem develops somewhere in the world. Still, producers should keep a close eye on the market and be ready to move when profitable pricing opportunities come their way.”
Tierney said producers who want to price part of their expected 1999 crop should consider a `scaled up’ selling strategy, using July 1999 futures price triggers of $3.85, $4.15 and $4.25 per bushel.
“Producers who use this strategy could prepare for even higher prices by purchasing out-of-the-money July and September call options to cover sales exceeding 25 to 35 percent of their expected crop,” he said. “Growers who believe wheat’s upside price potential is as much as $1 to $2 per bushel should consider buying calls that are three or four strike prices out of the money.”
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