Oklahoma State University's Kim Anderson on How To Lose Money Growing WheatTue, 10 Aug 2021 16:45:14 CDT
Oklahoma State University Extension Grains Market Analyst Dr. Kim Anderson gave a presentation to a room of Oklahoma wheat producers and state leaders last week titled, “How to Lose Money Growing Wheat,” at the 2021 Oklahoma Wheat Growers Association annual conference in El Reno, Oklahoma.
After opening with his question of how to lose money, Anderson offered simple strategies to combat managing, marketing and price - while getting restful sleep at night!
“A producer had a good answer to my question,” Anderson said. “He said just plant it and you’ll lose money.”
All joking aside, Anderson said he was given some great advice on wheat production early in his career from Dr. Jeff Edwards:
“Professional wheat producers, produce yields that will consistently produce 50 to 60 bushels per acre, they will manage their land, make decisions and do a good job of selling their product,” Anderson said.
Anderson used June and July wheat prices to make his point.
“In June, your average price was about $6.05, but in one day in June, wheat prices went up about 35 cents and another day, they went down about 35 cents,” Anderson said. “Then we came into July and averaged $6.09.”
Anderson said, while the average price of wheat in June and July was $6.08, there was a variability of about 80 cents to pay attention to. He said the best thing you can do in a volatile market, like what wheat producers saw in June and July, is to not sell everything at once.
“It’s just a matter of luck whether you sell on a high day or a low day,” Anderson said.
Since wheat producers near the Black Sea have entered the market, the way American wheat producers sell, should change because the market has changed, according to Anderson.
“Ten or fifteen years ago, we were selling a third at harvest, a third in September or October and the final third in November or December,” Anderson said. “I think what we have to do now is sell a third in June, a third in July and a third in August.”
To play it even more safe in a volatile market, Anderson advises staggering it even more.
“I would even say to sell (a tenth at a time) over those three months,” Anderson said. “That way, you’re going to get the average price - you may not get $6.30, but you for sure won’t get $5.60.”
Increased Price of Wheat
Anderson believes more volatility in the markets is due to the higher price of wheat. Meaning, a ten-percent change in $4.00 wheat equals 40 cents, whereas a ten-percent change in $6.00 wheat equals 60 cents.
“I think I’d take the higher prices, with higher volatility,” Anderson said.
According to Anderson, there are a number of factors responsible for $6.00 wheat prices, with the biggest factor being the loss of spring wheat in the northern United States and Canada.”
Some other factors are higher corn prices and less production from Russia, according to Anderson.
Looking Toward the Future
You can forward-contract harvested wheat for 2022 for $6.60 per bushel, according to Anderson. The average price per bushel in the last 12 years has been $5.20 per bushel, he added.
“That $6.60 looks pretty good for me right now and I’d start taking advantage of that,” Anderson said. “If we have a short crop in 2022, we’re going to have $8 or $9 wheat.”
The stage for high-priced wheat has been set for 2022, with the shortage of bread-flour wheat, according to Anderson. Anderson warns that if the Ukraine and Russia come back strong next year, prices will be lower.
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