Wheat: 2019 a Year of Marketing Opportunities, Says Economist

    Photo: Texas AgriLife Extension

    Texas wheat producers may have an opportunity to see higher prices and higher yields in 2019, according to a Texas A&M AgriLife Extension Service grain marketing economist.

    Dr. Mark Welch, College Station, who spoke at the recent Texas Wheat Producers Symposium, said producers need to be ready to lock in a rate that works for their operation.

    Some basic factors emerging from the 2018 crop year are going to set the price trajectory and levels for 2019 to a large degree, Welch said, although there are many macroeconomic conditions, trade policies and issues, that will also influence the final prices.

    “When it comes to the fundamental factors driving prices on wheat, we have a very strong demand base, in that the consumption of wheat continues to grow around the world,” he said. “And, we had a smaller crop in 2018, so production relative to the consumption patterns got tighter.”

    The global carryover supply of wheat relative to how much is being used got tighter, which typically is price supportive, Welch said.

    “That’s telling wheat producers all around the world we need more acres and we need more yield, because we have to keep up with consumption,” he said.

    Welch said U.S. farmers are expected to plant more wheat, particularly in the Southern Plains from Texas to Kansas, where there has been good moisture and much better planting conditions for wheat than in the last several years.

    The question becomes: What’s the rest of the world going to do, because the U.S. only grows about 8 percent of the wheat in the world?

    “What are the farmers in the former Soviet Union and Europe, our export competitors, and Australia and Argentina, what are they going to do?” Welch said. “We’ve seen global wheat prices higher in the last several years. So, the signals and incentives are there that they need to plant more wheat too. Their yield prospects and their export potential, as it unfolds over the year, will be very important.”

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    Production going up tends to push prices down, Welch said, but strong consumption and less wheat coming in is price positive and should offset the increased production.

    The next factor that needs to be looked at is what is going on in other agriculture markets that affects wheat prices, Welch said. There’s a strong correlation between the price of corn and the price of wheat, even though they don’t directly compete in a lot of markets, they tend to move together.

    “If we were to see a situation of strongly higher or lower corn prices, I think that would have a strong influence on our wheat, particularly at harvest in 2019,” he said.

    The good news for a Texas wheat producer is the corn price typically has its seasonal high in the months of April, May and into June, and falls off very strongly in July, Welch said. So as harvest approaches, wheat producers have a much better handle on what their production will be and if they see a rally in the corn market, the pricing opportunities may be profitable given what will hopefully be a higher production level.

    “So, you get your yield above average and get a decent price, that’s not a bad picture for wheat,” he said. “I think that’s a pretty good outlook for us. It’s the best outlook we’ve had in several years when it comes to the wheat market.”

    Welch said this outlook will keep wheat as a viable enterprise, not only in the Southern Plains where wheat “just fits,” but in the rest of the country as well.

    But he also warns producers that they have to be prepared to do their part.

    “I can point where the fundamentals are leading us, but in the end, I don’t know where the prices are going to be,” he said. “And, I certainly don’t know what a profitable price is for any given producer. But that’s certainly what every producer needs to know: what does work for you? Whether it is wheat or cotton or corn or cattle, there is a price per unit that works for you.

    “Every single day with the future’s market access we have, you can ask yourself that question: Is the price being offered today good enough? And, when we see those good enough prices, what are we doing about it?”

    Welch said a producer may not want to lock the entire crop in at one time, because there is vulnerability and volatility for higher prices, but, “can we do something to take some of the bottom side risk off? We’ve got our crop insurance in place, so you have that safety net, and then if you can raise that with some marketing tools, you have just raised the floor a little bit.”

    February and March, and then again in May, tend to see some pricing opportunities in the market for wheat, he said.

    “Somebody has to have their eye on the ball,” Welch said. “Who in your operation is watching for those opportunities? Somebody needs to be, because they can be fleeting, and we don’t want to let those opportunities get away.”

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