Wheat Profitability, Risks Present Challenge
Dr. Todd Davis, assistant extension professor in agricultural economics at the University of Kentucky at Princeton REC, discusses issues for producing wheat.
Photo by John LaRose, Jr.
BETTY VALLE GEGG-NAEGER
MidAmerica Farmer Grower
PRINCETON, KY.
The profitability potential and risk management issues for producing wheat were presented recently at the Wheat Field Day at Princeton, Ky. Dr. Todd Davis, assistant extension professor in agricultural economics at the University of Kentucky located at the Princeton REC, presented the outlook for wheat. His talk also centered on double crop soybeans.
“The message is really a challenging one for wheat,” he said. “It’s a market that really has been impacted by sluggish demand. Last year’s crop was below trend yield which should have been supportive of higher prices, but exports have been disappointing. The May WASDE had 2014-15 exports at 860 million and I think, given the export pace that may still be a little too high. So we’re looking at closing out last year’s marketing year with increasing stocks and that has been keeping prices depressed.”
USDA’s estimate of average farm price for the 2014 crop has been about $6 a bushel. This year, there’s still some uncertainty on the crop with the Kansas plains area coming out of a drought; but it’s been a tough winter with some winter kills.
“So we don’t know really what the production is going to be,” Davis added. “If you look at trend yields and just assume that we have maybe a slightly improved demand, we’ll probably have about the same level of carry over, but prices are still going to be under pressure.”
One problem is the really strong dollar, which is going to hurt wheat exports. There’s a lot of competition worldwide in wheat production, and with a strong dollar U.S. wheat is more expensive so customers start to look at other sources.
“On the risk management side of wheat, trying to come up with a price that covers variable costs and cash rent is going to be a challenge,” he noted. “Still, the soybean market is providing some pricing opportunities right now so managers may want to look at pricing some bushels because we could have a big crop of beans this fall. South America is seeing a very large crop so that’s a market that could be at risk just given the global production.”
Davis said farmers need to understand their cost structure, what prices they need from the market to be profitable, and use the marketing tools available to try to price some of their production and reduce some of this risk. ∆
BETTY VALLE GEGG-NAEGER: Senior Staff Writer, MidAmerica Farmer Grower