Market concerns about the quantity and quality of the US winter wheat crop being harvested and the dry conditions in other wheat-producing nations have sparked an unexpected run up in recent weeks to wheat prices.
Normally, the flood of new grain coming in at harvest time drives down crop prices, and with prices already low when the harvest began, farmers in Texas, Oklahoma and Kansas were worried.
That has not happened this year, though, and wheat prices have actually risen since the middle of last month, said Dan O’Brien, an extension specialist in grain markets at Kansas State University.
Photo: AP / Mike Hutmacher / The Wichita Eagle
This is welcome news for those farmers still bringing in their crops.
Wheat grower Vance Ehmke said cash prices at his local elevator in the western Kansas community of Dighton dipped as low as US$4.50 a bushel last month, but have risen to about US$5.50 a bushel.
“And that, in my opinion, was a gift from God — it will certainly help a lot more people get into the break-even range,” he said. “That will help a lot.”
However, the reasons behind this year’s low wheat prices and the more recent price bump probably have less to do with divine intervention than with global grain markets.
A weak market for US wheat exports has driven down prices this year. On July 1 of last year, central Kansas elevator terminals around Hutchinson were paying cash prices of between US$6.80 and US$7.04 a bushel for wheat, O’Brien said. As of Wednesday, they were paying US$5.68 to US$5.82 per bushel.
The recent price hike — generally US$0.60 to US$0.80 since the middle of last month — reflects market concerns about US wheat production and dry conditions in other wheat-producing countries caused by an El Nino weather pattern, O’Brien said. Global wheat production is moderately lower than was expected two or three months ago, causing prices to rise.
What is far more difficult to predict is how all these forces will affect domestic wheat prices in the future. That is due in part because the outlook for US wheat is intertwined with the strength of the US dollar, O’Brien said.
A high US dollar in comparison to other currencies makes US wheat more expensive for other countries to buy — which in turn drives down US domestic wheat prices.
Given the global economic uncertainties caused by Greece’s debt crisis, and its potential impact on the strength of the US dollar, farmers have difficult decisions to make: Should they sell now while they can still make a modest profit, or hold on to their crop in anticipation prices will go up further?
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