1997 wheat market: one for the bear, two for the bulls

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.

That was the mixed assessment of three market analysts at the recent convention of the MN Wheat and Barley Growers.

Sue Martin, president of Ag & Investment Services, Webster City, Iowa, sees 1997 leaning to the bearish side for grains. For that matter, 1998 too. She reasons that the world is entering a stocks rebuilding period, and although demand is also increasing, "with competition, we really have to bank on exports to carry the market."

Global wheat production in the 1997-98 marketing year has the potential to hit 590 million metric tons, which Martin says would be a record.

Martin believes grain prices will be soft early in 1997, but will likely rebound in the spring. "Use weather scares in April through June as your market opportunity," she says.

Martin offered this lesson from last year’s $6 wheat: don’t get too caught up in reaching a certain price. "Know what your cost of production is, and get the price you’re happy with."

Mike Krueger, vice president of Agri-Mark in West Fargo, thinks the market scenario of 1996 was not an abberation. "I’m not one to say we’re going to go back to $3 wheat and stay there for three years. We’ll have periods where we’ll slump, but it looks optimistic longer term. World consumption is outpacing production, and has chewed away stock surpluses," he says.

Krueger points out that much of the wheat production increase expected this year will be feed quality. There’ll be demand for good quality milling wheat, he says, which favors the United States. Further, the crop rotation pendulum in

Canada in 1997 favors a swing back to canola, which could take about 20 percent of last year’s Canadian wheat acreage.

"I’m not anxious to book new crop wheat at less than $3.50," says Krueger.

Asia will continue as the fastest growing market for U.S. wheat, he says. "We don’t have that interchangeability with rice in the world market as we did years ago, because world rice consumption is running parallel to production."

Krueger predicts more continuous, sharp peaks and valleys in the grain markets ahead. "I’m afraid that’s the period we’re going to stay in, partly because of the huge commodity funds involved in the market."

Chip Flory, Pro Farmer’s senior market analyst, agrees with Krueger in that looking at the long-term global picture, it will be a challenge for production to usurp consumption. "I’m a demand bull. If we grow it, they will come, period," says Flory.

Quality is a key demand factor. "The soft red winter wheat basis dipped tremendously last August-September. Why? Vomitoxin. There are tight supplies of quality winter and spring wheat. As long as we see those tight supplies, we’ll continue to see a strong basis," he says.

In the 1996-97 marketing year, only the Australians can compete with the U.S. on the basis of quality, as much of the late Canadian wheat crop was hurt by weather last fall, says Flory.

"Over the long-term, I think the world is going to learn to live with sanitary/phytosanitary problems like karnal bunt and TCK smut." Flory says more consistent shortages in world supplies will result in allowable tolerances.

The tarp could come off the Export Enhancement Program sometime in 1997, the analysts agree, to match European export bonuses, which late last year amounted to about 76 cents/bu. for wheat and 86 cents/bu. for barley.

Flory thinks USDA will oil up EEP in March or April; it will take that long to convince the administration to turn to EEP to meet current wheat export estimates. Martin sees the use of EEP later, in May or June, when she says "the USDA has a better handle of the expected larger world production coming on."

January 1997