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Farm
Bill Flash
Issue 24 -
November, 2000 - Page 2 |
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Prices today reflect the fact that no matter what happens to next year’s crop, this year’s market will end in a surplus condition at least for the exporting nations. We know by now within a small margin of error what the wheat crop was in the Northern Hemisphere. Wheat production in the Northern hemisphere represents about 80% of world wheat production. Overall U.S. ending stocks of wheat, while smaller than the last two years, will be significantly greater than 3 years ago and will still be a very large number as will Europe’s (Graph 3). A large corn crop will add to already large corn stocks adding another down trending factor for wheat prices (Graph 2). All of these numbers are of course either estimates or projections. But even if all of these projections are off as much as by 15% in favor of you, the producer, the major exporting nations will still end the year with enough wheat on hand to be called a surplus even if the world does not have a “surplus”. The U.S. wheat stocks on May 31, 2001 will represent about 37% of the wheat needed in the following year to meet U.S. domestic consumption and U.S. export demand. Worse yet, white wheat stocks will be the largest we’ve experienced in over 10 years. It is hard to think of any scenario between now and May 31, 2001, the end of the marketing year, that will change the basic relationship of supply to demand for the all U.S. wheat including white wheat. Wheat buyers know this as well. It will only be when they begin to “feel” that their supply of wheat might be threatened that they will begin to bid up futures contracts which will then have an impact back into the cash markets. That could happen tomorrow, it might not happen at all. Buyers will feel threatened about their supply depending on their view of what will happen to supply and demand with the “new” crop. I say “supply” because the “demand” side of the equation does not change much from year to year. History tells us that the World’s demand for wheat next year will be about 1.5% greater than this year. Who needs what and how much wheat will be fed to animals are about the only uncertain items on the demand side. But on the supply side, we know little except that the World will start the new marketing year on June 1 with a very, very small carry in or beginning stocks level. As a result, the world’s supply of wheat next year depends largely on next year’s crop. What buyers know, think and feel about next year’s crop, balanced by their complacency with present wheat supply, will dictate prices. Knowledge about the new crop grows each day until harvest. This is not a steady growth in knowledge, but knowledge that comes in jumps and spurts with both public and private crop, weather, and harvest reports. Those reports take on increased importance in a year like this. A bumper crop in the world next year and there goes much hope for higher prices. Just reflect on what happened to prices when rain came to Kansas, Oklahoma, and Texas the past three weeks. If there is an average crop next year the outcome will be less certain. It will depend to a certain extent on the size of the crop in the exporting nations. A small crop next year and things could get really interesting. If you are sitting on stored grain believing that price increases are a for sure thing, you might rethink your position especially if you need the cash. Some return in investment markets or CD’s is a far surer bet than these wheat markets. My own “feeling” is that the potential on the upside is greater than the downside but I don’t think that potential is overwhelming. |
