Wheat grows in field

Current wheat prices are quite depressed.

Winter-wheat planting has started for many producers across the county. While the 2020 acreage debate won’t reach a fever pitch until sometime in March, wheat acres are a critical first mover. Wheat acres, of course, have been decreasing in recent years, pushing more corn and soybeans into production. This week’s post considers another year of disappointing wheat prices.

Wheat prices worsening

Figure 1 shows the monthly average wheat prices received by producers since January 2000. Wheat prices in 2019 have stayed at more than $4 per bushel but have been decreasing since the beginning of the year. Wheat prices in 2016 decreased to less than $4 per bushel for six months. Wheat acres lost almost 9 million acres of production or 16 percent from 2015 to 2017.

This past year we noted wheat prices had observed a welcome recovery since 2016. Prices this past fall, for example, reached $5.31 in August. Prices have decreased since then, most recently hitting a disappointing $4.35 in August 2019. That’s a decline in prices in a year of almost a $1 per bushel, or 18 percent.

Prior to the farm-economy boom, wheat prices were regularly at less than $4 per bushel. But during the past decade sub-$4 was much-less common, occurring in only six months. Similarly monthly average wheat prices at or less than the most recent price of $4.35 have occurred in only 14 months during the past 10 years. That’s all to say that current wheat prices are quite depressed.

Wheat-corn price ratio decreases

Another helpful way of considering wheat prices is relative to corn. Wheat prices are depressed but consider how they are relative to alternatives. Figure 2 shows the monthly wheat-corn price ratio since 1970. During almost 50 years of data, the ratio has an average of 1.4. This past August the ratio was almost 1.6 but recently plummeted to 1.1. Historically a wheat-corn ratio of less than 1.1 has only occurred 9 percent of the time.

Taking figures 1 and 2 together, the implications are that wheat prices have decreased since this past fall and have decreased relative to corn prices. Both of those will likely limit producer enthusiasm toward wheat in 2020.

Wheat crop-insurance price decreases

Figure 3 shows the annual base crop-insurance price for wheat since 2000. For 2020 the price was set at $4.35. That’s $1.39 per bushel less than in 2018. Furthermore it’s the least crop-insurance base price since 2006. Again that’s another disappointing price signal for wheat producers.

Wrapping it Up

U.S. producers planted 45.6 million wheat acres in 2019, the fewest since records began in 1919. Headed into 2020, the price signals are all less favorable than a year ago – actual prices, relative prices and crop-insurance prices. Additionally the price signals are among the worst in recent years.

A key question for 2020 will be wheat acres, if acres will decrease to fewer than 45 million in 2020. While many factors impact planting decisions – rotations, planting conditions, etc. – prices are always an important factor. The implication of fewer wheat acres would be additional acres of alternative crops, especially corn or soybeans.

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David Widmar is an agricultural economist with Agricultural Economic Insights.