Farm406

farm406 12 If you are a northern Great Plains producer, you may have pinched yourself numerous times over the past several months to wake up from the nightmarish weather conditions that have enveloped the region. How bad has it been? In late-July 2017, 77% of the spring wheat crop in northeastern Montana and northwestern North Dakota were rated by the USDA as being in very poor, poor, or fair condition. Only in 1988 were conditions worse, when 96% of the crop rated in one of the lowest quality categories. Adding insult to injury, because global wheat stocks of high-quality wheat continue to be at a deficit, the demand for U.S. spring wheat exports has been higher than average. This resulted in a faster-than- usual depletion of inventories, which, in tandem with quickly deteriorating production conditions, led to a rapid spring wheat price increase but also left producers with few opportunities to take advantage of the price spike. The current dire consequences of the drought are becoming increasingly well-documented. But, where do wheat markets go from here? While it's always somewhat precarious to predict anything in agricultural markets with too much confidence, historical trends do provide some insights for making informed conjectures. I am particularly interested in considering three aspects: Are spring wheat prices in a bubble, which could deflate as markets adjust throughout the 2017/18 marketing year? How might producers' 2018 planting decisions be affected by this year's outcomes? And, if spring wheat prices remain relatively high, to what extent might NOW WHAT? Looking Forward to 2017/18 Wheat Markets Dr. Anton Bekkerman U.S. producers expect increased competition from Canadian farmers? One method for assessing potential price bubbles is considering the relative prices between agricultural commodities. For example, comparing how high spring wheat price is relative to the prices of other wheat classes. While there is some historical price difference between any two related commodities, observing price spreads that are particularly wide may signal a market imbalance. Since 1994, hard red spring wheat futures prices have, on average, been $0.35 per bushel higher than hard red winter wheat prices and $0.67 per bushel higher than soft red winter wheat prices. As of early-August 2017, however, nearby spring wheat futures prices were approximately $2.60 per bushel higher prices of both winter wheat classes. Before summer 2017, such a wide price spread has only been observed in fewer than 2.3% of days. This may suggest that prices are buoyed beyond fundamental supply and demand reasons. While next year's wheat planting decisions (that is, planted acres) may be similar to 2017, more likely scenarios will either be an increase in planted acres (potentially in response to higher prices) or a decrease in planted acres (if producers are perhaps more apprehensive after this year's production conditions). How have northern Great Plains producers responded in the past? Since 1909, planted acres data show that after a particularly unfavorable production year, farmers increase planted acreage by 13% relative to the preceding year farm finance

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