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We held off until the first week of November, but it is time we address the controversial topic on almost everyone’s minds: wheat acres.
Last week’s post noted that Mother Nature bats last when it comes to acreage and production. Expanding on that analogy, winter wheat acres are at the top of the batting order. While the acreage debate is months away from center-stage, winter wheat planting is wrapping up. This week’s post reviews trends in wheat acres, prices, and considerations for 2021.
The big-picture trend of fewer wheat acres is well known. Figure 1 shows total U.S. wheat acres since 1919. At 44.3 million acres, plantings in 2020 were the lowest in 100 years of data. Furthermore, wheat acres since 2017 have been below the historic low-water mark of 50 million acres – last observed in the ’50s and ’60s.
Wheat acres peaked at more than 88 million in 1981, shortly after the 1980 Russian embargo. It’s kind of hard to believe that wheat acres tumbled 50% in 40 years, but this is what happens with a 1.7% average annualized rate of decline over four decades. Even slow rates of change can have a large influence over decades or careers.
Another point to note is the sharp uptick in acres during the 1970s. Wheat acres had been nearly 50 million acres for almost two decades before surging higher. The uptick in acres resulted from higher prices, strong exports, and the story of the Great Russian Grain Robbery.
Figure 1. U.S. Wheat Acres, 1919- 2020. Data Source: USDA NASS.
Figure 2 shows U.S. winter wheat acres since 2000. Winter wheat acres typically account for 70% of total wheat acres. Just 20 years ago, it was common for wheat acres to range from 40 to 45 million acres. In 2020, winter wheat acre reached a low of 30.4 million acres, the fewest acres since 1909 (29.2 million).
Figure 2. U.S. Winter Wheat Acres, 2000- 2020. Data Source: USDA NASS.
When thinking about possible outcomes in 2021, it is worth considering prices and price relationships. Figure 3 shows the wheat/corn price ratio, which has an average of 1.40. At 1.46 in August, the price ratio had been above average in recent months. Furthermore, the August 2020 price ratio – the most current data from USDA – was well above the August 2019 level of 1.10. Overall, the price ratio was bleak for wheat last Fall, averaging 1.13 from July 2019 to November 2019.
While the price ratio is higher, wheat’s relative improvement has come mostly from lower corn prices. Last August (2019), prices were $3.93 (corn) and $4.34 (wheat). This year, August 2020, prices were $3.12 for corn and $4.55 for wheat. In other terms, August 2020 wheat prices were 4.8% higher than a year before, but corn prices were 21% lower.
Keep in mind the rally in commodity prices mostly occurred after the USDA’s August price data. July 2021 Hard Red Wheat prices (the KC contract) hit a low in early August of $4.50 per bushel. By early October, prices had significantly rallied and approached $6.00. Currently, prices are more than $5.50 per bushel. In short, winter wheat planting took place during a strong market rally.
Finally, higher Fall 2020 wheat prices have translated into higher crop insurance prices (Figure 4). For the 2021 crop, the wheat crop insurance price is $4.90 per bushel, which is up from $4.35 in 2020. It’s worth noting the 2020 price was the lowest since 2006.
Figure 3. Monthly Wheat/Corn Price Ratio, 1970- 2020. Series Average: 1.40. Data Source: USDA NASS’s Prices Received and aei.ag Calculations.
Figure 4. Base Wheat Crop Insurance Price, 2001-2021.
Wrapping it Up
In early January, the USDA will release the Winter Wheat and Canola Seedings report, which will give us the first look at the 2021 acreage situation. While producers must consider several factors when deciding on wheat acres, higher prices, a strong price ratio, and dry conditions were front-of-mind.
To help navigate the unknowns of wheat acreage, an Ag Forecast Network question has been added:
In the coming months, additional AFN acreage questions will be included.
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