Farm Bill Flash

A newsletter on farm programs, farm policy, and market insights

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Issue 24 - November, 2000

Conflicting Market Signals Create Confusion

It has been some time since the signals in wheat markets have been so confusing. The World wheat stock-to-use ratio, an indicator of available stocks, is predicted to drop to 18.7% by May 31, 2001. In comparison, the previous low which happened in 1995/96, was 19.1%. Anything below 20% is considered critically low. Throw in the facts that Australia is rumored to have dryer than normal conditions, China’s grain production is down, and that Argentina’s production is said to be all committed to cover Brazil’s shortfall and a reasonable conclusion would be to expect upward pressure on wheat prices. Yet during the last full week of October, the futures contracts on all of the U.S. grain exchanges fell in price, and they do not paint a very rosy picture for the next year. The Portland white wheat prices fell six cents below the previous week remaining well below $2.40 per bushel at most Eastern Washington elevators. (See Graph 1)

Even the experts draw very different conclusions. Jim Hilker, marketing professor at Michigan State University, has an excellent market web page which is linked on the GrowServ markets page, http://pnw-ag.wsu.edu/Markets/markets.htm. In October Jim wrote, “What all this (market fundamentals) tells me, is that the odds that it will pay to grow wheat, have gone up.” Wayne Purcell of Virginia Tech University, one of my favorite market analysts, says in his October 24, 2000 newsletter which is also linked on the GrowServ markets web page, “I see nothing, with no limits on production, to keep this type of low-price and difficult market from happening again next year.”

Confused yet? So what is happening here. Buyers are reacting more to factors they know are affecting the immediate horizon than to those that “might” influence the market in the future. While the very low world ending wheat stock levels suggest “potential” wheat supply shortages 12 to 18 months from now, those shortages are by no means certain. What is very certain is that for the next 9 to 12 months, there will be no shortage of wheat.

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