September 1997
Markets could see sharp seasonal price movements
By Tracy Sayler
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
When wheat stocks dwindle, wheat prices rise. When stocks build, prices fall. That's true in most years, says Ed Usset, a wheat analyst with the Minnesota Extension Service and The Mendota Company in St. Paul. (Ed Usset (right) discusses the markets with Mike Bruer, an Alberta, MN grower and director of the MN Association of Wheat Growers. Usset, conducted a pre-harvest marketing seminar for MAWG members and guests this past summer.)
Look at the U.S. wheat supply/demand numbers from the last three marketing years, he says, and you'll see an increase in all numbers pertaining to supply, including harvested acreage, yield, production, carryover (ending stocks), imports, and stocks-to-use.
Although hard red spring and durum wheat production may be off about 150 million bushels from a year ago, the increase in the overall U.S. wheat stocks equation (due much to a better-than-expected winter wheat crop) has had a key influence on price.
Not all is doom and gloom, however: exports and demand look to be stronger in the latter half of the marketing year. Two reasons:
- The fact that wheat prices are lower. "I expect to see a demand response to that," says Usset.
- Five countries in the world account for 90 percent of the world's wheat exports (U.S., Canada, European Union, Australia, Argentina) and of those five, only the U.S. is expected to have higher production than a year ago.
Usset senses the wheat market may have put in its seasonal low, or is close to it, and there could be a strong seasonal price rise, particularly if unexpected export business arises (see graphic on seasonal price movements of MN Wheat). "The last few years there seems to be stronger price movements," he says, "the highs are higher, and the lows are lower." Freedom-to-Farm may be playing a role in these price swings, he says.
Before the wheat market can start an upswing, it has to first sort out a potentially large corn and soybean harvest. Usset says the wheat market will stay defensive until the trade has a handle on this year's corn and soybean production.
"Wheat will start rallying the day we figure how big the corn and soybean crops are. Once corn and soybean production is known, what more can be thrown at wheat but demand?" he says.
The corn and soybean harvest numbers aren't clear yet. But Usset notes: "I think that July weather makes corn, and August weather makes beans."
With favorable weather, the U.S. corn crop could for the second time in history hit 10 billion bushels. If that happens, the average corn price, which in Minnesota in October-November trades 30 cents under June prices, could be tested. Those low prices could in turn spur demand and a strong seasonal price rise.
The soybean market could follow a similar path. "Last February, I was struck by how many growers in these parts were talking soybeans. As it turned out, there was a big jump in soybean acres. The beans came from North Dakota, northern Minnesota,and Kansas - areas that would not be called normal bean country. Prices responded to the higher acreage. Now we're going from a stocks levels for beans that was second tightest in 30 years, to a level that's comfortable. Not burdensome, but comfortable."
Usset says that November beans could trade under $5.50 with favorable weather. Typically, Minnesota October bean prices average 60 cents under June prices.n