Both wheat prices and production were better in 2012 than in 2013. The jury is still out for 2014. But the signs indicate that higher production will be needed to offset lower prices in 2014.
The value of the combined Oklahoma and Texas wheat crops in 2012 was $2.03 billion. The value of the combined Oklahoma and Texas 2013 wheat crops was $1.25 billion. Gross wheat value was 38 percent less in 2013 than in 2012.
Note that the discussion is about value, not about what producers actually received. This analysis assumes that all production was sold between June 1 and December 31, and equal amounts were sold each day. The reality is that this is not the case, but the results will be “in the ball park.”
In 2012, combined Oklahoma and Texas wheat production was 251 million bushels. The average daily price between June 1 and December 31 was $8.09. That number, multiplied by 251 million bushels equals $2.03 billion.
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In 2013, combined Oklahoma and Texas wheat production was 180 million bushels, and the average price between June 1 and December 31 was about $6.98. The math shows that number multiplied by 180 million bushels equals $1.26 billion.
The 2014 wheat crop is in significantly better condition than the 2013 wheat crop was this time last year. Going into dormancy, the 2014 Oklahoma wheat crop condition was rated 4 percent poor to very poor and 61 percent good to excellent, compared to the 2012 wheat crop, which went into dormancy at 44 percent poor to very poor and 4 percent good to very good.
The 2014 Texas wheat crop went into dormancy with a 28 percent poor to very poor and a 21 percent good to excellent rating. This time last year, the 2013 wheat crop went into dormancy with a 40 percent poor to very poor rating and a 21 percent good to excellent rating.
In mid-December 2012, wheat could be forward contracted for a 2013 harvest delivery for about $8.20. In mid- to late-June 2013, Oklahoma and Texas Panhandle prices were near $7. At this writing, wheat may be forward contracted for harvest delivery for $6.26.
Assuming that the average June 2014 wheat price is $6.26, for the value of the 2014 wheat crop to be equal to the 2013 wheat crop, 2014 production would have to be 10.6 percent higher than 2013 wheat production.
Assume that the June 2014 wheat price is $6.26. For the value of 2014 wheat production to be the same as the value of 2013 wheat production, 2014 wheat production has to be 199 million bushels or more. Given current crop conditions and planted acres, Oklahoma and Texas wheat production should be greater than 199 million bushels.
What this analysis shows is that gross income from wheat is not expected to be anywhere close to the $2.03 billion 2012 crop. For the 2014 wheat crop to produce as much income as the 2013 wheat crop, either prices need to increase or combined Oklahoma and Texas wheat production must be greater than 199 million bushels.
The odds are that Oklahoma and Texas June 2014 wheat prices are going to be significantly less than both the 2012 and the 2013 June wheat prices. This prediction implies that, for an individual producer, costs and yields are the critical factors to wheat income.
This also implies that efficient use of fertilizer and chemical to produce relatively high yields are the keys to profit. Production is a function of weather and management practices.