Projecting wheat prices

[smithc]

I am working with a farmer trying to project amber durum and HRS wheat prices into the next 3 years. Any suggestions on what would be good ball park prices during that time?

[piquett]

I'm sure you'll get varying opinions on this one - of course three years out is a long time. Compare 1995-96 prices with todays - who would have predicted a 40% decline in prices in Dec 95? That said, I see the total supply of wheat in the world (prod'n and carryin) continuing to slowly decline, and the ending stocks slowly declining. The big factor will be the available supply in US, Europe, Australia, Canada and Argentina. At the moment, the ending stocks of these 5 countries is forecast to be very high coming out of this crop year, well above the five year average. This will keep the lid on prices into 2000-01 unless there is a severe production problem. I'd very cautiously say that prices may start to improve heading out of the last half of next year, assuming 'normal' production around the world. How much? Wouldn't expect much more than a max 5-10% increase in CWRS prices per year. The unforeseen factor is export subsidies and govt programs. If the LDP in the US is attractive for wheat in the near future, look out. If the EU ratchets up export refunds (which they did this year, currently at about US$42/t) look out. This could encourage production, and lower export values. On durum, its a much smaller market, and influenced very heavily by Canada on the supply side, and North Africa on the demand side. The US stocks were a problem heading into this year, with the impact of the LDP program on durum acres, but their quality was poor. The good quality durum has shown some strength this fall, although its fallen back recently with heavier US farmer deliveries. Again, assuming 'normal' production, we may see some strengthening in durum prices over the next three years, but unless there is a big production problem somewhere, I think it will be gradual. Perhaps at best 5-10% per year as well. I'm not suggesting that this is a clue to go long wheat or durum, as I see some significant downside risks. For farm management projections, play it conservative; its always the best planning strategy. Tom

[charliep]

I agree with Tom's analysis of slow steady appreciation in prices if weather stays normal/crops remain good. For whatever reason, world wheat acreage (particularly in the five major exporters) is staying up despite crummy prices - subsidies in the EU/US and lack of more profitable alternatives in Australia, Argentina and Canada. World wheat demand is growing but at a slow pace which is being offset by the supply side. I see Canadian wheat acres in 2000 increasing dramatically with canola the looser. Why less canola and more wheat? 1) Concern/confusion in the farm community about the GMO issue ( will buyres stop buying GMO seed). 2) Higher cost of producing (depending on individual situation, canola is $20 to $40/ac more expensive than cereals) in a year of tight cash flow. 3) $4/bu wheat or $3/bu malt barley is more profitable than canola. 4) Need to straighten up crop rotations after pushing them pretty hard over the past couple of years. Thoughts. Anyone willing to venture a 2000 seeded acreage forecast?