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WHEAT SCOOPS: $11 wheat, why and how long?

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Wheat use increased and for the 2020/21, 2021/22 and the projected 2022/23 marketing-year, wheat use is projected to be equal to or greater than production.

At this writing, wheat prices in northern Oklahoma and the Texas Panhandle are near $11. Southern Oklahoma wheat prices are in the $10.35 price range. These relatively high wheat prices did not just happen when Russia invaded Ukraine. Even though wheat prices didn’t start the uptrend until during the 2020/21 marketing year, the foundation for higher prices may have been established during the 2018/19 wheat marketing year. 

A review of world wheat production and use compared to U.S. average annual wheat prices will help explain why wheat prices are $11 and when prices may decline. 

The U.S. average annual wheat price reached a peak at $7.70 in the 2012/13 wheat marketing year. Average annual wheat prices trended downward and bottomed out at $3.89 in the 2016/17 wheat marketing year (Figure 1). During the marketing years 2015/16 through 2020//21, average annual wheat prices were between $3.89 and $5.16.  

The U.S. average annual price was $5.05 for 2020/21, $7.07 for 2021/22, and is projected to average $10.75 for the 2022/23 wheat marketing-year. 

As wheat ending stocks increased from 7.2 billion bushels in 2013/14 to 9.8 billion bushels in 2016/17, the U.S. average annual price decreased from $6.87 to $3.89.  

Wheat ending stocks peaked at 11 billion bushels during the 2019/20 marketing year, and the average annual wheat price was $5.05. 

A price dilemma is that, during the 2016/17 wheat marketing-year, world wheat ending stocks were 9.8 billion bushels and the average annual price was $3.89. Compare that to the fact that 2022/23 marketing-year ending stocks are projected to be 9.8 billion bushels, and the price is projected to be $10.75.  

There are basically three reasons for relatively high wheat prices with relatively high wheat stocks. Higher prices were set up during the 2018/19 wheat marketing-year. During each marketing year 2013/14 through 2017/18, world wheat production set a new record. 2017/18 wheat marketing year production was 27.8 billion bushels compared to 26.3 billion for 2013/14.  

For each of these five years, 2013/14 through 2017/18, world production averaged 916 million bushels more than wheat use. 

 

wheat-scoops-graph-july.jpgFigure 1. World wheat ending stocks and U.S. Average Annual Price.

                (Wheat ending stocks in billion bushels)

World wheat production for the 2018/19 marketing year was 26.85 billion bushels and use were 26.90 billion bushels. For the first time since 2012/13, world wheat ending stocks didn’t increase.  

During the 2019/20 wheat marketing-year, production was a record 28 billion bushels and use was 27.2 billion bushels. World wheat ending stocks peaked at 11 billion bushels, and the average annual price was $5.05. 

In the 2020/21 wheat marketing year, world wheat production was a record 28.5 billion bushels and COVID-19 changed the market systems. Between 2020/21 and 2021/22, world wheat use increased from a record 27.2 billion bushels to a record 28.5 billion bushels. 

The increased wheat demand may have been caused by wheat users buying ahead of needs rather than on an as-needed basis. Whatever the cause, wheat use increased and for the 2020/21, 2021/22 and the projected 2022/23 marketing-year, wheat use is projected to be equal to or greater than production. Increased demand (use) resulted in wheat prices increasing from the $5 range to around $8.50. 

Russia’s invasion of Ukraine is reported to be responsible for the prices above $8.50.   

 How long price will remain relatively high is anybody’s guess. My best guess is that without additional loss in world wheat production, prices will stay in the $10 to $12 range. A Russian/Ukraine settlement could result in a $2 loss in price during the 2022/23 marketing year and a wheat price of $8 during the 2023/24 marketing year. 

TAGS: Outlook
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