North Dakota Wheat Issues

By Jim Peterson
ND Wheat Commission Marketing Director

Wheat remains an important crop for North Dakota agricultural and the state’s overall economy. The 2007 wheat crop is estimated to be worth about $2 billion in production value alone and $6 billion in total economic impact.

The unprecedented wheat market prices have boosted producer returns to previously unimaginable levels, with the average gross return at nearly $220 per acre this year, well above the recent four years of $120 to $135 per acre. The final returns on wheat for the 2007 crop may even be higher with current cash prices of more than $16 per bushel for spring wheat and more than $22 for durum.

The good returns on wheat and strong demand signals should drive an increase in overall wheat acres in North Dakota in 2008, and help wheat gain back some of the acres that have moved to other crops over the past 5 to 10 years. Newer varieties of durum and spring wheat with enhanced yield and disease resistance will be positive variables for wheat, but the market will also need to keep prices strong through planting as producers have a wide variety of crops to choose from including peas, lentils, canola, flax, malt barley, corn, soybeans, canola and dry beans. New product demand for many of these crops, along with the crop rotation benefits of  disease and weed management, and cost savings on inputs, labor and machinery will require higher prices for wheat compared to 5 and 10 years ago. 

Winter wheat will likely continue to gain in popularity, until we have a year of severe winter kill or significant market premiums for hard red spring. This past year, hard red winter wheat in our area benefited in price from production and quality shortfalls in the main hard red winter wheat areas. Since December however, hard red spring wheat has moved to a significant price premium over hard red winter wheat due to increasing demand for hard red spring wheat both internationally and domestically and perceived tight supplies.

What will the acres mix look like for 2008? Private analysts have overall U.S. wheat acres increasing by 4 to 5 percent or 4 million acres, with soybeans gaining 6 million acres and corn declining roughly 7 million acres. In the wheat mix, winter wheat and durum are expected to gain acres compared to 2007 while hard red spring wheat may fall by 4 or 5 percent. We beg to differ with some of the early private projections for a decline in spring wheat plantings, and look for steady to slightly higher acres. The market is trying to put more value on 2008 returns by moving more than $2 per bushel higher on the Minneapolis September futures since November. Further gains in January, now have us over $4 per bushel higher or plus $11/bushel. Carryover stocks of hard red spring wheat will reach record low levels this year due to very strong demand, and even with a production increase, stocks look to remain near historically low levels again for 2008.

The durum outlook is strong, but based on expectations for a rebound in acres, and the smaller overall demand base for durum compared to hard red spring wheat, supplies could increase by 10 to 15 percent. This will likely take ending stocks back to the 30 million bushel level, as compared to 14 million this past year. Acres look to rebound the most in the Desert Durum area of California and Arizona, where their producers can sell the 2008 crop in June and July and take advantage of the very tight supply situation facing end-users in the 2007/08 marketing year.

All in all, wheat producers are seeing good returns on wheat and it looks like those returns should remain strong for a couple years, until stocks can be replenished. With other crops also competing hard for acres, we may not see the big acre shifts among crops like we have in the past. Certainly wheat looks to be one of the top options for producers to consider in 2008.