SPOKANE — Wheat prices are likely to continue to drop into the spring, regional market experts say.
The market typically sees a price decline in April or May as the industry prepares for the coming new crop, said Ty Jessup, industry representative for the Washington Grain Commission and marketing manager for HighLine Grain Growers in Waterville, during the March 7 board meeting in Spokane.
"Having it happen in the middle of February really took everybody by surprise," Jessup said.
Jessup cited price declines in other wheat-producing countries, including the European Union, Argentina, the Black Sea region and Australia.
World buyers will wait as long as possible, Jessup said. When they return to the marketplace, that should establish a bottom price, he said.
"Where is the floor? I don't know," he said. "Every day I think we've hit it, and then we go lower."
Soft white wheat starts at $5.90 per bushel on the Portland market.
Jessup said overseas buyers will try to stretch their stocks to purchase from the new crop. The Black Sea is already aggressively selling its new crop as feed wheat at $5.20 per bushel, he said.
"White wheat is relatively tight stocks-wise when you compare it to the other classes of U.S. wheat," said Byron Behne, with the grain marketing department at Northwest Grain Growers in Walla Walla, Wash. "But apparently right now there isn't anybody stepping in to buy it."
Dan Steiner, grain merchant with Morrow County Grain Growers in Boardman, Ore., said index and hedge funds decided to liquidate and reduce their long position as speculators sold wheat futures.
Funds are buying back some of the wheat they sold in recent weeks at roughly a $1 per bushel profit, because prices are a $1 per bushel lower than they were in December, Steiner said.
"The whole thing was about money, they start putting pressure on this market, they start driving it into the ground," he said. "Now they are starting to buy back their position at fantastic profits."
Until speculators are finished liquidating, the market doesn't have much chance to rally, Steiner said.
Steiner said the market doesn't have weather premiums built in, which means any weather event will be magnified and cause lots of volatility, reacting "very violently" when something arises.
That will provide opportunities for farmers to sell during rallies, he said. He recommends selling old crop with minimum-price contracts.
Many parts of Australia are very dry, and the Pacific Northwest wheat crop will need moisture from timely rains after planting into dry conditions last fall, he said.
"If we have nothing but average or good weather, probably we are going to see cash values continue to fall," Steiner said. "But we have the entire spring and summer to go through. We've got a lot of weather to trade before this market is done."
Jessup said farmers are optimistic about crop conditions under snow cover. But growers are nervous about prices and likely to grab at any price rally they see.
"I don't think anybody expects to go back to the highs," he said.