It’s a “lead pipe cinch” that 2013 hard red winter (HRW) wheat production will be significantly below the 2013 one billion-bushel production. The odds are that HRW wheat production will be less than the five-year average of 942 million bushels.
In nearly all of the HRW wheat area, wheat was planted with inadequate soil moisture, which resulted in erratic stands. Tiller development is below average. Wheat root systems tend to be shallow, and large areas of wheat, even in the same fields, are in multiple stages of maturity.
These wheat growth problems were magnified by two freezes in April. Another problem is that most of the HRW wheat area has insufficient subsoil moisture and still remains in Severe or Exceptional drought conditions.
Wheat is a resilient plant. As an old adage goes; “Before harvest, wheat is killed seven times.” The 2103 wheat crop doesn’t have many lives left. What is needed for wheat production is timely rain, average or below average temperatures, and the absence of diseases.
Price is almost the opposite of potential production. The five-year average monthly June wheat price in Oklahoma and the Texas Panhandle is about $6.42. At this writing, wheat may be forward contracted for harvest delivery for about $7.05 ($7.50 KCBT July minus 45 cents basis), which is slightly above the five-year average.
Weather is a major determinate of wheat yields and production. Production is a major determinate of wheat prices. Current production expectations indicate that the average June 2013 wheat price is expected to be near $7.
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Another determinate of June wheat prices is corn supply and expected corn production. Corn ending stocks are projected to be 757 million bushels, compared to a five-year average of 1.25 billion bushels. Relatively low corn supply (stocks) may have resulted in 2012/13 wheat marketing year wheat prices being $1 higher than if corn stocks had been above average.
Some market analysts are predicting 2013 corn production to be over 14 billion bushels and 2013/14 corn ending stocks to be near 2.0 billion bushels. If these analysts are correct, the corn price support for wheat will disappear. But 2013 production can’t increase corn stocks until harvest in August.
Potential problems with 2013 corn production will affect June wheat prices. Wheat stocks are sufficiently tight that the market will keep HRW wheat prices high enough to minimize the amount of wheat that goes into the feed market.
If 2013 HRW wheat production is well below 942 million bushels and if expected 2013 corn production is below 13 billion bushels, June wheat prices will be well above average.
Using the last five years as a guide, the average Oklahoma and Texas June wheat price could be as low as $5.75 or as high as $9.75. The low price ($5.75) would be the result of both high HRW wheat production and expected high corn production. The high price ($9.75) would be the result of both low HRW wheat production and low expected corn production.
The expected average June wheat price is $7; the expected low price is $5.75; and the expected high price is $9.75. These expectations imply that, with the current market offer of about $7, there is more upside price potential than downside price risk.
For producers whose wheat production potential is nearly nonexistent, the situation may be disastrous. If these producers have crop revenue insurance, the situation may be categorized as bad.
For producers whose wheat production potential still exists, things may not be as bad as some people think. Good growing wheat weather and problems with getting the 2013 corn crop planted could put some producers in a relatively good position.