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 FEAR
• 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
$1.50
$1.40
$1.30
$1.20
$1.10
1980
$0.51
$4.25
$0.06
$0.46
11%
2009
$1.40
$6.63
$0.09
$1.31
6%
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, %
$1.00
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
1980
1984
1988
Price of Bread
Avg U.S., white bread, 1-lb loaf
1992
1996
2000
Value of Wheat
KC HRW, Ordinary Protein
2004
2008
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
250
7/10/09
1970/1971
1971/1972
1972/1973
1973/1974
1974/1975
1975/1976
1976/1977
1977/1978
1978/1979
1979/1980
1980/1981
1981/1982
1982/1983
1983/1984
1984/1985
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
kg
World Per Capita Grain Use
350
340
330
320
310
300
290
280
270
260
corn, barley, sorghum, rye, oats, millet, mixed grains, wheat, rice
World Per Capita Consumption
Kg
Yr to Yr
140
11-yr
120
+1.3%
100
-0.1%
-3%
+0.6%
-0%
+3.3%
+29%
+16%
80
60
40
20
0
99/00
00/01
01/02
02/03
Soybeans
Updated 7/10/09
03/04
04/05
Wheat
05/06
Corn
06/07
07/08
Rice
08/09
09/10
Annual World Per Capita Wheat Production and
Consumption
Kg/person
105
100
Consumption
95
90
Production
85
80
July 10, 2009, USDA, PS&D database
World Wheat: Days of Use on Hand
140
120
100
80
60
40
20
0
8/12/09
Days of Use
Average
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
0
e
e
1
2
3
4
5
6 7
8
9
0
1
2 3
4
5
6
7
8 9
0
1
2
3
4 5
6
7
8
/8 /8 /8 /8 /8 /8 /8 /8 /8 /9 /9 /9 /9 /9 /9 /9 /9 /9 /9 /0 /0 /0 /0 /0 /0 /0 /0 /0 09 10
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 / 09 /
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
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
5-year avg
2007/08
1,000,000
2008/09
800,000
2009/10e
600,000
400,000
200,000
0
1-Sep
1-Dec
1-Mar
1-Jun
U.S. All Wheat Exports, MY to Date
million bushels
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
2006/07
2007/08
2008/09
2009/10
Major High Quality Wheat Competitors
Production
and
Exports
000 mt
000 mt
80,000
80,000
70,000
70,000
60,000
60,000
50,000
50,000
40,000
40,000
30,000
30,000
20,000
20,000
10,000
10,000
0
0
Australia
Canada
Argentina
Australia
Canada
Argentina
Euros per $US
€
1.30
1.20
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Wheat Prices
$ or €
12
€0.64/$1
10
8
6
€1/$1
4
2
€0.71/$1
€1.17/$1
0
$/bu
Euro/bu
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
40
35
Strong
Episodes
30
25
20
15
5
0
Average = 21 bu/ac
El Nino Average = 23 bu/ac
Strong El Nino Average = 30 bu/ac
1973
1974
1975
1976
1977
1978
1979
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
10
Wheat Variable Costs and Grain Revenue
$/acre
250
Good yields
Good price
200
150
100
50
0
2003
2004
2005
2006
Total Costs
2007
2008
Grain Revenue
2010 crop: 20 bushel yield, $5.45 BE (about $6.10 on the board)
2009
2010e
Grazing Rate to Break Even
with Grain Production
$0.60
$0.55
$ per
pound
of
gain
$0.50
$0.45
$0.40
$0.35
$0.30
$4.00
$4.50
$5.00
$5.50
$6.00
Wheat per Bushel
Grazing = 5 bushel yield loss and +$4/acre costs
$6.50
$7.00
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
800
Early season planting conditions
Southern Hemisphere Crop Production
25%
750
700
650
600
550
500
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