Competitive Commodity Insights: What's with wheat?

What ever happened to the wheat shortage?

As little as two short months ago, USDA was reporting farmers nationwide were devoting the fewest number of acres to wheat in decades. The agency expected all wheat plantings, including all varieties, to total only 49.6 million acres, down a surprising 9 percent from 2015 and the lowest acreage since 1970. Driven by any number of factors, including the farm-program dictates, relative crop prices and higher demand for corn heightened by ethanol usage, this former grand-daddy of High Plains crops was being slowly driven out of the average farmer's crop mix. Anticipating possible resulting shortages, the commodity futures price for wheat shot up, as buyers hedged against the possibility that tight supplies resulting from such low plantings would cause prices later in the year to explode.

These developments came fresh on the minds of commodity traders remembering just six years ago, when Russian drought and worries about a global shortage of the grain revived fears of a repeat of 2008, when low supplies of the grain led to riots in several countries, pusing prices up at their fastest rate in half a century.

Given the smaller area planted to wheat, U.S. wheat production was expected to fall this year, as was the world's production through 2017. The spring forecast from the International Grains Councilpredicted world wheat production for 2016 and 2017 to be down 3 percent from a record 734 million metric tons in 2015 and 2016.

Now, fast-forward to July 4, considered the traditional start of the wheat harvest in Nebraska, and the state's farmers are awash in the grain.

The Agriculture Department estimates the average yield for the new crop of winter wheat in the United States is now projected to be record high at 50.5 million bushels. Production is projected at 1.506 billion bushels despite an 8-percent year-to-year decline in area harvested. The improved outlook for winter wheat lifts aggregate wheat production for 2016/17 to 2,077 million bushels, an increase of nearly 80 million bushels from the May projection and an increase of 25 million bushels over the 2015/16 crop. The Nebraska Wheat Board thinks this year's harvest should be a good one. Initial outlooks show it many be better than in the last few years, but they don't want to expect too much before the numbers start coming in. Increased export prospects in the European Union and Russia this month also reflect changes in those countries’ wheat output. The projected increase in world wheat production is slightly higher than consumption growth, leaving record-level stocks virtually unchanged.

The bottom line is farmers are again reacting to the highs and lows of the commodities markets in supplying the food chain, and wheat is perrenially unattractive. The all-wheat season average price for 2015/16 as of June remains at $4.90 per bushel. June is the first month in the wheat marketing year and thus the 2016/17 wheat marketing year is officially underway. The preliminary price reported in last month’s World Agricultural Supply and Demand Estimates is lowered by 10 cents this month to a midpoint of $4 per bushel. Prices on the low and high end of the range are $3.60 and $4.40 per bushel, respectively. Wheat prices have not been projected this low since the 2005/06 marketing year; at present the market value of the 2016/17 crop is nearly 2 billion less than for 2015/16.

As Montana wheat farmer Jim Mertens tells the onlinge magazine Narratively, that $4.50 per bushel he's sold his wheat crop for the last two years is a bit less than he was selling it for in high school back in the 1970s.

Meanwhile, a new feature-length Austrailain documentary featuring Virginia farmer Joel Salatin and food activist Vandana Shiva doesn't stand to help spur demand for wheat-based products. The film, What's with Wheat?, paints demon wheat as the underlying cause of numerous ills, from diabetes to leaky gut syndrome to celiac disease and gluten intolerance to industrial agriculture’s vices.

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