Wheat Prices Will Remain
by Matthew Weaver
Wheat prices are likely to remain low in 2017 unless severe drought or some other weather catastrophe curtail a significant portion of this year's global crop, market analysts say.
The USDA predicts a total wheat supply of roughly 992 million metric tons for the 2016-2017 crop year, up from 953 million metric tons last year. That includes 252 million tons of carryover.
"There's going to have to be some sort of crop failure in some of our key competitors -- Australia, Europe and Canada" before wheat prices will rebound, said Darin Newsom, senior analyst for DTN in Omaha, Neb. "There's a lot of things that have to happen. None of them seem like they're realistic at this point."
Earlier in 2016, Newsom wrote a column saying that if the U.S. stopped planting wheat and took itself out of the global marketplace, there would still be enough left in the world. The U.S. produced roughly 62.9 million metric tons of the 752 million metric tons produced worldwide, up from 735 million metric tons last year.
Such a scenario isn't realistic, Newsom said.
"The fear would be from the global community that the U.S. is trying to start a supply scare," he said. "Maybe that's what it takes."
Dan Steiner, grain merchandiser for Morrow County Grain Growers in Boardman, Ore., estimated that the world needs a reduction of roughly 40 million to 50 million metric tons -- roughly the equivalent of the total U.S. hard red winter crop -- for prices to return to profitable levels.
Because of the high global supply, average weather and an average crop this year could send prices 40 cents per bushel lower, he said.
Farmers are raising wheat on fewer total acres in the U.S., said Byron Behne, marketing manager for Northwest Grain Growers in Walla Walla, Wash.
But "the carryover supplies are so big, that creates quite a buffer," Behne said.
The strong dollar is working against U.S. wheat growers.
According to Bloomberg.com, one U.S. dollar is currently worth roughly 117 Japanese yen. In the past year, it's been as low as 99 Japanese yen. One U.S. dollar is worth roughly 0.95 euros. During the past year, it's been as low as 0.86 euros.
A strong dollar will mean the U.S. industry will struggle to move grain onto the global market, Newsom said. Federal Reserve rate hikes are likely to continue to strengthen the dollar, further putting U.S. wheat at a disadvantage, he said.
Newsom doesn't see much evidence yet that President-elect Donald Trump will be positive for agriculture, citing Trump's plans to put tariffs on Chinese imports, which would result in retaliation from China; breaking the North American Free Trade Agreement with Mexico and Canada and ending the Trans-Pacific Partnership trade deal, which would work against Japan and increase China's role in Asia's export and import markets.
"So far what we've heard could possibly disrupt trade with our first, second, third and maybe four out of the top five trading partners we have globally when it comes to U.S. grain," Newsom said. "Maybe it was all just bluster, none of it's true and maybe none of it's going to happen, but certainly his statements and his position seems to be anti-ag industry."
Wheat in general won't be impacted at first, he said. But if agriculture comes under fire, Newsom foresees long-term disruption to the market.
Steiner predicts a short-term negative effect, but the economy would improve overall in the long-term, benefiting demand compared to a shock to the supply side.
"If demand is based on people who have got a job, they can pay their bills and they want to eat a better diet, that's a whole lot more sustainable than praying for a drought or praying somebody suffers a catastrophe some place in the world," he said.
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