SPOKANE — Wheat prices could go 50 to 60 cents per bushel higher if the Southern Plains don’t get significant precipitation, a North Dakota marketing analyst says.
Some parts of Oklahoma and Texas haven’t seen rain in four months, said Mike Krueger, founder of the Money Farm and a senior analyst for World Perspectives, Inc.. Krueger gave the economic forecast Feb. 7 at the Spokane Ag Expo and Pacific Northwest Farm Forum.
The Northern Plains are also very dry, with the annual rainfall in many areas at their lowest since 1991.
That could trigger funds to jump into the marketplace and start buying, Krueger said.
Prices have no middle ground any more, Krueger said. They’ll either be very high or very low.
“The problem of low prices isn’t because high prices killed demand,” he said. “High prices brought us more world acres, better farming practices pretty much every place on earth that a farm can afford to do it — farms began to maximize the best seed they could buy, the best fertilizer, chemicals, fungicides, you name it. That took place worldwide.”
USDA expects Russia to export 1.2 billion bushels of wheat this year. Some in the U.S. have speculated that the Black Sea region is close to reaching its capacity for the short term, but Krueger noted Russia has made significant investments in farming technology, transportation and port facilities.
“We used to hear repeatedly how crummy their wheat was — people bought it because it was cheap, but we don’t hear so many complaints any more about quality,” he said. “But they need weather — it’s been highly unusual for them to have four or five record crops in a row.”
Record global consumption has been offset by five record world crops, a strong U.S. dollar and cheap ocean freights, Krueger said.
Competing countries can move their wheat or other crops at lower costs, he said.
Potential “black swans,” or difficult to predict events with big impact, include world weather, equity markets, trade negotiations; geopolitical risks such as North Korea and large grain and seed company mergers.
China holds 40 to 50 percent of the world wheat and corn supply. The reliability of those figures and the crop’s quality are uncertain, Krueger said. He wondered about the possibility of China overstating production and suddenly purchasing wheat and corn.
Krueger also wondered if the U.S. could be headed for just two major crops, corn and soybeans, pointing to declining national acres for wheat, barley and oilseeds. But if good weather patterns change in big corn and bean production areas, he said, those crops may seem less attractive.
Corn, soybean and wheat yields only need to go down a little bit to cut ending stocks, he said.
“We don’t need any of those armaggedon-type scenarios,” he said. “If you just take the edge off the top of these record yields, the picture can start to change relatively quickly.”