Despite one of the lowest wheat planted acreage in three decades in response to already record high inventories in the United States and the world, the 2016 production conditions have been arguably “too” good. Milder and wetter spring and summers across the Great Plains and globally has resulted in bumper crops. In the United States, winter wheat yields reached a record 51.3 bushels per acre. In Russia, early reports are indicating yields that exceed 71 bushels per acre.
So, despite market attempts to respond to lower 2015/16 marketing year prices by reducing quantities supplied, storage bin space in the United States and across the world has not increased. This has resulted in further declines of wheat prices and increased global trade competition from France, Russia, Ukraine, Kazakhstan, and Australia. The situation has been exacerbated by record yields of other crops, such as corn—which is projected to yield of a record 175.1 bushels per acre—and soybean—with a projected yield of a record 48.9 bushels per acre.
What’s the impact? Well, just as an example, consider that as of August 11, 2016, the September 2016 futures price for winter wheat was $4.10 per bushel, nearly $1.00 per bushel lower than the price on the same date in 2015. Similarly, the August 11, 2016 spring wheat futures price was $0.25 per bushel lower at $5.00 per bushel. In Montana, winter wheat was, on average, $0.95 per bushel higher last year than the $3.25 per bushel average price in August 2016, while spring wheat was relatively on par across years (likely due to higher demand for protein in the 2016/17 marketing year).
The natural question to ask: Are the 2016/17 marketing year prices here to stay?
When I’m asked a question like this, I typically go to four sources:
- The winter wheat and spring wheat futures markets: For winter wheat, futures prices for the September 2017 contract are (as of August 13, 2016) $4.93 per bushel—a 20% increase over this year’s September price. Similarly, September spring wheat futures are at $5.57 per bushel, a $0.44 per bushel bump.
- The USDA Agricultural Projection report: This report indicates that wheat prices (across all classes) have hit their 10-year low in the 2016/17 marketing year. Next year, the projections suggest a slight increase to an expected $4.50 per bushel price.
- The FAPRI U.S. Crop Price Bulletin: Similar to the USDA projections, this bulletin also indicates the 2016/17 marketing year as having the lowest prices across a seven year period. Prices are expected to rise to $4.81 per bushel, representing an average across all wheat classes.
- The wheatbasis.montana.edu price forecasting tool: For prices across elevators in the northern United States, this tool provides harvest period forecasts for both winter and spring wheat classes across different protein content levels. While only forecasts for next year’s winter wheat crop are available, the tool suggests the price of 11% protein winter wheat to be $3.77 per bushel, representing approximately a $0.50 per bushel increase over this year’s price.
So, overall, it seems that after weathering this year’s marketing environment, wheat producers could expect improvements next year.