Record wheat price reached in 2012-13 season


The Roman god Janus had two faces so that he could look back at the past and forward to the future at the same time.

That ability would be helpful in navigating the wheat market. The 2012/2013 marketing year came to a close on May 31; harvest of the 2013/2014 marketing year crop is wrapping up in Texas and moving north; planting of the 2014/2015 crop will begin soon. Aspects of wheat supply and demand in the marketing year just passed will have implications for the 2013 crop just harvested and the new marketing year ahead.

The primary factor impacting the wheat market in 2012 was the drought in the Corn Belt. Tight supplies of corn increased the demand for wheat as a substitute feed grain. Wheat used for feed in 2012/2013 was 360 million bushels, the highest since 391 million bushels for feed in 1998/1999. In addition, dry conditions reduced wheat production in the nations of the former Soviet Union (FSU-12) in 2012. The FSU-12 produced 2.8 billion bushels of wheat in 2012 and exported 929 million bushels. This compares to 4.2 billion bushels of production in 2011 and exports of 1.5 billion. The FSU-12 was the leading exporter of wheat in the world in the 2011/2012 marketing year. Those events drove the U.S. season average farm price for wheat to a record $7.80 per bushel in 2012/2013.

Wheat prices were on the rise in 2012 just at the time that the Risk Management Agency (RMA) set the projected price for insurance products related to the 2013 wheat crop using July 2013 Kansas City Wheat futures. RMA uses the average closing price from Aug. 15 through Sept. 14 of the next crop year to set the insurance base price.

In the fall of 2012 that price was also a record high, $8.78 for most hard red winter wheat producers.

High grain prices in 2012 resulted in increased planted acres in 2013. In the U.S. all wheat acres planted in 2013 are projected to increase by 700,000 over 2012. However, continued drought in the southern plains is increasing abandonment and lowering yields resulting in a projected smaller U.S. wheat crop in 2013 compared to 2012.

Worldwide, wheat production in 2013 is forecast to be near a record high level, up over 6 percent compared to 2012 on a 3 percent increase in harvested acres and a 3 percent increase in yield. An increase in wheat production in the FSU-12 is expected to account for about two-thirds of the change in world wheat production. World wheat consumption is forecast to reach record high levels as well. Total use is expected to increase by 3 percent over last year.

Critical to price expectations in a commodity market is a measure of available stocks to estimations of use. One tool to evaluate stocks to use is to calculate the days of use on hand at the end of the marketing year, which is simply ending stocks divided by daily use. In the world wheat market, the estimated days of wheat on hand at the end of the just ended 2012/2013 marketing year was a 97 day supply of wheat.

Increasing production, strong use, and tighter stocks provide a firm foundation for price support in the wheat market.

However, much of the recent price strength in wheat can be attributed to a shortage of corn supplies.

Just how much spillover support wheat got from the corn market will be clearer if there is a strong rebound in corn production in 2013.