Marketing Opportunities May Materialize for Wheat12/09/2016
The U.S. has a pile of wheat to dig through this year, and that means lower prices. But a Texas A&M AgriLife Extension Service economist said world circumstances could present marketing opportunities in the coming year.
Dr. Mark Welch, AgriLife Extension grains marketing economist in College Station, spoke at the recent Texas Wheat Symposium during the annual Amarillo Farm and Ranch Show in Amarillo.
“We will be moving in the right direction going forward,” Welch said. “The strong increase we are seeing in grain consumption around the world will help us move through some of this oversupply.”
He said grain consumption has risen over the years due to growing average incomes in some countries where the middle class has expanded.
“Projected economic growth is around 3 percent in a good portion of the world, including Asia, Africa and South America, and that’s good for what we do,” Welch said. “Wheat use is growing at 1 pound per person per year, in addition to population growth of about 1 percent each year.”
Heavy wheat supplies are a result of four consecutive record wheat crops, which has only happened one other time in history, he said.
“We currently have a 124-day surplus of wheat on hand, while carryover stocks of the other crops are very close to their average,” Welch said. “Given the strong consumption base, wheat is the only one showing a strong supply while the others show vulnerability in the market.”
He said at this point only China is showing potential for a production problem in 2017 across the world. China is a net importer of all major commodities, so this could present some marketing opportunities for U.S. wheat.
The U.S. continues to see strong export sales in spite of large local supplies and a strong dollar, Welch said.
“In 2017, the most important question will be acreage. We planted the lowest winter wheat acreage in 100 years last year and expect even fewer for 2017.”
With a drier-than-normal weather outlook, along with warmer-than-average temperatures in the High Plains, Welch said it is setting up to be a year of marketing opportunities for wheat producers.
“I expect some degree of lower production worldwide,” he said. “That combined with continued growth in consumption points to somewhat higher prices in 2017 compared to 2016, though likely not enough to cover total costs of production.”
“I expect wheat prices to be about $1 per bushel higher next year if we get a cut in production and the wheat-to-corn price relationship returns to more normal levels. Wheat is currently priced much lower relative to corn compared to historical averages.
“But it does present us with some marketing opportunities,” he said. “The big money players are currently betting on higher prices turning the market around.”
Welch said producers must know what they have in their crop and be able to recognize the situation when it occurs if they want to be able to take advantage of any opportunities that materialize.
“Nobody really knows where prices are going to go. Economic theory teaches that prices will fall back to the cost of production, which means you need to be the lowest-cost producer. That and monitor the market for opportunities.”
Source: Texas AgriLife Extension