Wheat Marketing
and Risk
Management
Wheatheart
Wheat Conference
Hang on
or
let go?
Perryton, Texas
August 13, 2009
Mark Welch
Grain Marketing Economist
Market Drivers
• Economy FE
AR
• Demand Flat
– Exports
– Feed
– Food
• Supply
Pumping ethanol from corn in 1933
Adequate
– Export Competition
– Planted Acres
– Weather
“Without the runaway demand growth of ethanol, many of the
recent stories need to be rewritten in short order.”
--Michael Swanson, Economics Department, Wells Fargo
Value of Wheat in a Loaf of Bread
1980
$0.51
$4.25
$0.06
$0.46
11%
Average Price of a Loaf of Bread
Average Price of Wheat
Value of Wheat in a Loaf of Bread
Value of Other Factors in a Loaf of Bread
Value of Wheat in a Loaf of Bread, %
Avg U.S., white bread, 1-lb loaf
2009
$1.40
$6.63
$0.09
$1.31
6%
KC HRW, Ordinary Protein
Global Economic Growth
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Percent Change
Global economic growth is being driven by developing nations.
Real GDP Growth, 1980 - 2014
10
8
6
4
2
0
-2
-4
-6
Advanced Econom ies
Em erging and Developing Econom ies
As of April 2009
Source: http://www.imf.org/external/datamapper/index.php; 2009-2014 projections
World
World Per Capita Grain Use
kg
corn, barley, sorghum, rye, oats, millet, mixed grains, wheat, rice
7/10/09
World Per Capita Consumption
Kg
Yr to Yr
11-yr
+16%
-3%
-0%
+29%
Updated 7/10/09
Annual World Per Capita Wheat Production and
Consumption
Kg/person
July 10, 2009, USDA, PS&D database
World Wheat: Days of Use on Hand
8/12/09
U.S. Wheat Supply and Demand, 8/12/09
million bushels
3,000
2,500
2,000
1,500
1,000
500
0
Beginning
Stocks
+0
08/09
Production
Imports
+72
-5
09/10 May
09/10 Jun
Domestic Use
=
+5
09/10 Jul
Exports
+25
Ending Stocks
+37
09/10 Aug
U.S. Wheat Use
Million Bushels
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
80
/8
1
81
/8
2
82
/8
3
83
/8
4
84
/8
5
85
/8
86 6
/8
7
87
/8
8
88
/8
9
89
/9
0
90
/9
1
91
/9
92 2
/9
3
93
/9
4
94
/9
5
95
/9
6
96
/9
7
97
/9
98 8
/9
9
99
/0
0
00
/0
1
01
/0
2
02
/0
3
03
/0
04 4
/0
5
05
/0
6
06
/0
7
07
/0
08 8
/0
9
09 e
/1
0e
0
Ending Stocks
Feed and Residual
Source: USDA/ERS, WASDE, USDA , 2009/10 estimated
Updated 8/12/2009
Exports
Food, Seed, and Industrial
U.S. Wheat Stocks
000 bu
U.S. All Wheat Exports, MY to Date
Major High Quality Wheat Competitors
Production
000 mt
and
000 mt
Exports
Euros per $US
€
Wheat Prices
$ or €
ENSO Alert System Status:
El Niño Advisory
Synopsis: El Niño conditions will continue to develop and are
expected to last through the Northern Hemisphere Winter 20092010.
During June 2009, conditions across the equatorial Pacific Ocean
transitioned from ENSO-neutral to El Niño conditions. Sea surface
temperature (SST) anomalies continued to increase, with the latest
weekly departures exceeding +1.0°C along a narrow band in the
eastern equatorial Pacific (Fig. 1). All of the weekly SST indices
increased steadily during June and now range from +0.6°C to
+0.9°C (Fig. 2).
JFM Precipitation Anomalies (mm)
and Frequency (%)
Northern High Plains Dryland Wheat Yields
Average = 21 bu/ac
El Nino Average = 23 bu/ac
Strong El Nino Average = 30 bu/ac
Wheat Variable Costs and Grain Revenue
$/acre
Good yields
2010 crop: 20 bushel yield, $5.45 BE (about $6.10 on the board)
Good price
Grazing Rate to Break Even
with Grain Production
$ per
pound
of
gain
Wheat per Bushel
Grazing = 5 bushel yield loss and +$4/acre costs
Seasonal Price Index for U.S. Wheat
June 1999 – May 2009 Marketing Year
Percent of Average
120
110
100
90
80
J
J
A
S
O
N
5-year
7/10/09
D
J
F
10-year
M
A
M
July 2010 KC Wheat and Marketing Plan
¢/bu
Early season planting conditions
Southern Hemisphere Crop Production
25%
Crop Emerging
from Dormancy
25%
Late Season
Conditions
25%
Harvest
25%
Marketing Philosophies
• Ready, Aim,
Aim, Aim, Aim,
Aim, ………
• Ready, Fire,
Aim!
The man who insists on seeing with
perfect clearness before he decides,
never decides.
Henri-Frédéric Amiel
How high? How long?
Outlook Reports Available
JMWelch@ag.tamu.edu
Mark Welch, Economist—Grain Marketing
JMWelch@ag.tamu.edu
(979)845-8011
http://agecoext.tamu.edu/index.html