Looking Towards the 2019-2020 Marketing Year
Dr. Todd D. Davis—Extension Grain Marketing Specialist
From the April 22, 2019 Wheat Science Newsletter
The end of the 2018-19 wheat marketing-year is quickly approaching so this article will provide a few comments about the old-crop wheat and set the groundwork for the new crop balance sheet and the supply and demand factors affecting the U.S. marketing year average price.
Preparing for 2019-2020
The March 31 Prospective Plantings report projects wheat planted area to decline to 45.8 million acres, which is the smallest area seeded on record (going back to 1919). The inclement weather last fall hampered seeding. Profitability signals also shifted wheat to other crops across the Plains states. The total wheat area is projected to decline by over 2 million acres with 58% of the reduction occurring in Kansas (-700 thousand acres), Montana (-310 thousand acres), and North Dakota (-195 thousand acres). The reduction in planted area is needed by the market to help keep the level of stocks from increasing to a more burdensome level.
The 2019 wheat crop has emerged from dormancy in much better condition than last year’s crop. About 60 percent of the U.S. crop is rated in good or excellent condition in the weekly Crop Progress report as compared to is 31 percent for the 2018 crop for the same week. If this continues, a better than average yield could reduce the benefit of reduced planted area and provide a larger than expected crop.
Table 1 provides a sensitivity analysis of the impact of various yield and demand levels for the 2019-20 marketing year. The balance sheet assumes the prospective plantings acreage with an average abandonment from the previous four years. The balance sheet assumes a trend yield of 48 bushels/acre with a sensitivity of 4 bushels lower and higher.
The demand projections are from the April 2019 projections from the Food and Agricultural Policy Institute (FAPRI) at the University of Missouri. The FAPRI projections are for a slight increase in use to 2.1 billion bushels (Table 1).
Table 1 shows that if trend yields are harvested coupled with a slight increase in use, ending stocks could decline below 1 billion bushels. The reduction in the stocks-to-use ratio would support a higher U.S. marketing-year average farm price. A larger than average yield could potentially increase stocks to 1.1 billion bushels and push prices lower to $5.10 per bushel.
The constant risk for the wheat market is total demand, so the impact of use declining in 2019-20 to 1.98 billion bushels is shown in Table 1. This analysis assumes the same demand as the 2017-18 marketing year. An above-trend yield coupled with reduced demand could increase ending stocks to 1.26 billion bushels. The increased stocks-to-use ratio of 64% would limit price potential. The projected U.S. marketing-year average price in this scenario is $4.90 per bushel.
Keep an Eye on the Markets
Do not forget to monitor the grain markets while you are planting corn and soybeans and harvesting wheat. The markets tend to react to weather in this busy season, so take a few minutes to evaluate if there is an opportunity to lock in a price for wheat, soy-beans or corn. Consider using commodity futures to manage price risk and provide a broader window to market your crops.
