Thanks to a tightening of wheat stocks-to-use ratios in both the domestic and international markets, prices remain at a near decade high (figure 1). However, it might be prudent to begin pricing some of the 2022 wheat crop if you have not already done so. Prices have become quite volatile (see figure 2), and there are some concerns relative to where the U.S. wheat balance sheet may end up at the end of the marketing year. Figure 2 shows the futures price for next summer’s wheat crop increased $2.00 per bushel between early July and late November, but in recent weeks has given almost $0.80 of that back. There are reasons to continue to be optimistic about prices for the 2022 crop, but over the next month or two I believe downside risk may be greater than additional upside potential.
(Select photos to enlarge)
Figure 1
USDA reduced their total wheat export projection this month by 20 million bushels. If realized, this will be the lowest wheat export volume in 6 years. A larger concern, however, is that the current pace of weekly export shipments does not support the new forecast. Through mid-December we were only exporting about half of the wheat needed to reach USDA’s forecast.
The export shipments by week are reported every Thursday (for exports through Thursday the previous week). We need to see those averages between 19 and 20 million bushels per week through the remainder of the marketing year if we hope to hit USDA’s current forecast. If exports continue to lag, expect to see USDA reduce their export forecast and increase ending stocks in later issues of their monthly World Agricultural Supply and Demand Estimates.
USDA is also currently forecasting an increase in U.S. wheat acres for 2022. If this is realized and spring growing conditions are better than last year, we could see a significant increase in total wheat production this year compared to 2021. USDA will report their winter wheat acreage estimate on January 12, and their first estimate of spring wheat acres on March 31. We will likely see many private estimates for both those numbers prior to the USDA releases. If increased acres are confirmed and there are no production scares, prices could be pressured.
Neither of these challenges (lagging exports or increased production) point to an immediate collapse in wheat prices, but we will see above average price volatility as the market sorts these events out. If you choose to delay pricing any wheat for next summer’s harvest, you are basically betting that:
- Any potential increase in production is either not realized or small, and/or
- The export pace will pick up in the coming weeks and the current estimate will hold up, and/or
- World consumption will continue to exceed world production in 2022/23 (the crop year over which next summer’s harvest will be consumed) and more than offset any bearish news in the domestic market.
All the conditions above represent possibilities. The question is, how much do you want to risk hoping they are realized, especially given current prices compared to those available the previous several years?