This time last year who would have ever thought that we were sitting on and hatching a major bull market in the grains. Well, it’s here now and the only question for wheat is how high it’ll go.
There are a lot of factors that explain how we got here like being pulled along by very strong corn and soybean markets. The declining wheat acreage has also helped a bunch. For instance, the 2020 Kansas wheat acreage was the smallest in over 100 years. And the carryover is shrinking.
Further, don’t expect much in the way of increased acreage for the 2021 crop. Or for that matter, don’t expect much in the way of the yields of the upcoming crop. Kansas crop conditions are the worst in over 50 years””and are the second worse ever going into dormancy. I’ve already seen some fairly concerning winter kill.
In talking with a number of seed wheat companies and universities along with certified seed wheat dealers, there is a very strong consensus that the 2021 Kansas wheat acreage increased, but only slightly. Daryl Strouts with Kansas Wheat Alliance estimates our planted wheat acreage will show only a 3 to 5% statewide increase. “That would take us up to between 6.9 and 7 million acres of wheat planted in Kansas.”
Others report acreage increases in eastern Kansas and Nebraska. But they don’t grow much there anyway. In the seed industry, there is also speculation that the eastern Colorado acreage will be up somewhat.
But that brings to mind another major factor that could have a profound influence on the wheat market. If you’ve looked at a drought map recently, there is one heck of a lot of red in eastern Colorado. And for much of Kansas, the trend is also dry. Consequently, the season’s dry conditions brought on by La Nina are expected to hurt yields. Here in Kansas where we produce 40% of the nation’s hard red winter wheat, yields are projected at 37 bushels per acre compared to last year’s 40 bushels. Just 33% of Kansas wheat is rated good-to-excellent compared to a 5-year average of 50%.
Too, Russia and other Black Sea wheat producing countries are also dealing with the same drought. That means Russia could impose a 75 to 80 cent/bushel export tax on wheat exports from mid- February into the summer. Oklahoma State University Extension wheat marketing specialist Kim Anderson says because of transportation advantages, the Russian export tax shrinks to an advantage to us of just half that. But that still provides a sizeable lift to our market.
To make matters even more interesting, China could be increasing wheat imports to their highest level in 25 years because of high domestic grain prices. But they likely won’t be buying from Australia because of growing trade frictions between those two countries. That means they’ll have to shop elsewhere””like the US and the Black Sea region.
And then there’s the value of the US dollar””which continues to drop and which continues to make our export commodities look even more attractive pricewise. Our cheapening interest rates have been negative for the dollar. Plus, as COVID vaccines become available worldwide, it increases likelihood that money will flow instead into other countries. Some currency experts are expecting a major drop in the value of the dollar.
Looking again at the Kansas wheat acreage, we’ll probably see somewhat of an increase in the 2021 crop, but will it go up much more for the 2022 crop? If you’re sitting there in Lane or Scott County looking at $6.50 grain sorghum prices and $5.50 wheat prices, are you going to think twice about summer fallowing and then planting to wheat this fall? Or will you just plant that much more milo this spring?
And for those of you who are interested in charts and technical trading, I asked a local technician what he thought. He said since we had walked right on through resistance at $5.60 and then $6 on current month KC futures, there was just not a lot left between here and the wild blue yonder. “$7 wheat is a real distinct possibility.”
But then again, there’s that drought. And as I was once reminded, “There’s reason why wheat goes to $6….you ain’t got any.”