April 18, 2002

Market Advisor: Can Wheat Prices Move Up?

By George Flaskerud, Crops Economist
NDSU Extension Service

Minneapolis December wheat futures have been on a general decline since last fall. December closed at $3.20 on April 15 which is 38 cents below where the December 2001 contract closed a year ago. For the immediate future, abandonment and development of the hard red winter (HRW) crop are key factors to higher prices.

USDA’s crop progress report on April 15 indicated that 34 percent of the winter wheat crop was in good to excellent condition versus 45 percent a year ago, 33 percent was fair versus 35 percent a year ago, and 33 percent was poor to very poor versus 20 percent a year ago. The lowest ratings were for states where primarily HRW is grown. Crop progress reports can be found at www.usda.gov/nass/pubs/staterpt.htm. 

One of the worst HRW crops was in 1996. On April 7 of that year, the crop progress report indicated 27 percent was good to excellent, 33 percent was fair and 40 percent was poor to very poor. Abandonment was 27 percent that year and 29.5 bushels per acre were harvested.

Conditions are clearly better today than in 1996. But, what if the HRW crop continues to deteriorate while the rest of the wheat crop is about normal?

Under a 1996 scenario, some rationing would have to occur but not a lot. Given the already poor outlook for exports, use could be rationed rather easily through reduced feeding. Ending stocks could still be about 20 percent of total use. A price rally of 50 to 75 cents would be the likely outcome.

Is there still downside risk? Yes. A good wheat crop could push prices down to feed value. The downside risk is probably about as great as the upside potential.

World wheat production is forecast to increase about 2 percent under normal growing conditions, according to the March Grain Market Report by the International Grains Council. A major increase is expected in the European Union, where production is projected to be up 16 percent. Combined production by Canada, Argentina and Australia is projected to decrease about 4 percent. USDA will release its projections for 2002 on May 10.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu