The Arkansas wheat harvest began near the Louisiana border in mid-May and has crept steadily northward since. Harvest has yet to hit I-40 so it's still too early to render a verdict on the crop. So far, though, all indications are it's a good one.
“I spoke with an Extension agent in (east central Arkansas) this afternoon,” said Jason Kelley, Arkansas Extension wheat and corn specialist on May 26. “He said they were cutting around Gillette and DeWitt. The crop seems to be drying down much faster than folks expected. A few days ago, it was thought it would be next week before the crop was really ready.”
Yields are solid, something that a dry winter and spring usually helps. “Of course, I hear the good reports first. But 70- to 80-bushel yields seem to be common in properly managed fields. Those are paying off. It appears test weights are good, as well.”
There remain some good pricing opportunities for wheat producers. Kelley has spoken with producers who sold a portion of their 2007 crop and have already booked some of their July 2008 crop.
“The guys who are top-notch managers and watch the markets closely are all over this. They're booking wheat two years in advance.”
July wheat is currently trading at $4.09. The downside for producers is a “very wide” basis, said Scott Stiles, Arkansas Extension economist. “(On May 25), I was looking at the cash bid around the state. The basis is anywhere from 34 cents under to 56 cents under for a July 2006 contract. In other words, instead of getting that $4.09 that's on the board, the producers are actually getting from $3.53 to about $3.65.”
With such a wide basis, the common strategy for a producer, if he's capable, is to store some of the crop.
That could mean better prices for delivery as far out as December.
“Looking at some of the bids for December delivery, the basis is actually better. Producers can get about a 4-cent improvement. So, instead of being about 35 cents under, a grower might narrow the basis to around 30 cents under. That's something to consider. At (one Delta wheat receiver), if you deliver in December, it would net $4.10 per bushel.”
As of May 22, Arkansas had harvested just 1 percent of the wheat crop. Stiles suspects a good portion has been forward contracted. “But normally a producer won't forward contract the entirety of his crop. Most hold that to half their crop, if that much.”
After visiting with producers and seed salesmen, Kelley said all indications are there will be much more wheat planted this fall. “The other day, I was talking with a seed salesman. He's already gotten a lot of calls from producers wanting to books some seed wheat this fall.”
Because of a severe dip in wheat acreage the last few years, there are concerns about seed availability. That possibility “is definitely on the radar screen. A couple of producers have told me they'll probably save some of their varieties that are yielding well and aren't too weedy. They want to make sure they have enough seed wheat. I imagine there will be others doing the same.”
Other crop numbers
Right now, the situation with cotton is a bit bullish, said Stiles. As far as export sales, the fundamental picture looks good. “It appears China's consumption continues to climb and we're a big seller to them. We're supplying about 45 percent of their cotton needs. For the 2006 crop year, it appears they'll consume about 51 million bales.”
If the expectation of a smaller crop plays out, U.S. ending stocks should be going down. Weather conditions in south Texas haven't improved. Much of the region's dryland acreage will be abandoned — some of it has been already.
“So, the U.S. is looking at a 2006 crop that could be 3 million bales smaller than the 2005 crop. That will lead to a drawdown in our inventory while world consumption should exceed production. World ending stocks will drop, too.”
That's positive for prices. Some analysts are saying new crop cotton prices will hit in the mid- to low-60 cent range. That's all based on good export demand.
This is also happening while U.S. mill use isn't going up. In fact, the U.S. milling business casualty list is only growing.
In a recent newsletter, O.A. Cleveland, Mississippi State University economist, reported that Georgia-based “Avondale Mills announced that they would close their U.S. operators in the very near future. They consumed an estimated 500,000 bales annually. It is likely that a new owner will operate only one or two of their plants. This closure leaves only some five major operations in the U.S.”
Soybean prices are decent. Considering how large supplies are, this is a bit of a surprise. “If the market were trading strictly on fundamentals, bean futures are overpriced by $1 a bushel,” said Stiles. “What's really supporting soybean prices is the amount of fund money currently being invested in commodities. There's no fundamental reason for soybean prices to be where they are.”
Soybean acreage is expected to be up about 7 percent, or at least 4 million acres. And the United States is already at record carryover/ending stock levels.
“So it's hard to justify the bean prices. Since that's the case, I encourage producers to go ahead and price at least a portion of their new crop beans. Maybe they could consider that on 20 to 30 percent of their crop. They can be conservative until there's a semblance of what yield prospects will be. It's hard to pass up these futures prices of over $6.”
Could the reports of Asian soybean rust (ASR) in Mexico be a factor in the prices? “There's no doubt, the ASR scare supported the markets last summer. (And statistics say) if rust is ever confirmed in Texas, the likelihood it will reach the Midwest is about four times greater. If the market gets a whiff of that, it'll keep a psychological support under these prices. But don't (count on that). Over the winter, ASR never left Florida…so it's hard to know if the markets paid much attention.”
There are also good futures prices in corn. The September contract is trading at $2.64. “The support in the corn market has been tied to the index fund, investments in commodities. It's also been supported by the expectation that corn acres would be down due to high fertilizer costs.
“But I think the good run of weather we had during corn planting allowed more acres of corn than USDA estimates. If that comes to light at the end of June — coupled with somewhat lower fertilizer costs — it will likely pressure corn prices in the second half of the year.”