Wheat Marketing and Risk Management Wheatheart Wheat Conference

Wheat Marketing and Risk Management Wheatheart Wheat Conference Hang on or let go? Perryton, Texas August 13, 2009 Mark Welch Grain Marketing Economist

Market Drivers • Economy FEAR • Demand Flat – Exports – Feed – Food • Supply Pumping ethanol from corn in 1933 Adequate – Export Competition – Planted Acres – Weather “Without the runaway demand growth of ethanol, many of the recent stories need to be rewritten in short order. ” --Michael Swanson, Economics Department, Wells Fargo

Value of Wheat in a Loaf of Bread $1, 50 $1, 40 $1, 30 $1, 20 $1, 10 1980 $0. 51 $4. 25 $0. 06 $0. 46 11% Average Price of a Loaf of Bread Average Price of Wheat Value of Wheat in a Loaf of Bread Value of Other Factors in a Loaf of Bread Value of Wheat in a Loaf of Bread, % 2009 $1. 40 $6. 63 $0. 09 $1. 31 6% $1, 00 $0, 90 $0, 80 $0, 70 $0, 60 $0, 50 $0, 40 $0, 30 $0, 20 $0, 10 $0, 00 1984 1988 Price of Bread Avg U. S. , white bread, 1 -lb loaf 1992 1996 2000 Value of Wheat KC HRW, Ordinary Protein 2004 2008

Global Economic Growth Global economic growth is being driven by developing nations. Real GDP Growth, 1980 - 2014 As of April 2009 Source: http: //www. imf. org/external/datamapper/index. php; 2009 -2014 projections

250 7/10/09 1970/1971/1972/1973/1974/1975/1976/1977/1978/1979/1980/1981/1982/1983/1984/1985/1986/1987/1988/1989/1990/1991/1992/1993/1994/1995/1996/1997/1998/1999/2000/2001/2002/2003/2004/2005/2006/2007/2008/2009/2010 kg World Per Capita Grain Use 350 340 330 320 310 300 290 280 270 260 corn, barley, sorghum, rye, oats, millet, mixed grains, wheat, rice

World Per Capita Consumption Kg Yr to Yr 140 11 -yr 120 +1. 3% 100 -0. 1% -3% +0. 6% -0% +3. 3% +29% +16% 80 60 40 20 0 99/00 00/01 01/02 02/03 Soybeans Updated 7/10/09 03/04 04/05 Wheat 05/06 Corn 06/07 07/08 Rice 08/09 09/10

Annual World Per Capita Wheat Production and Consumption Kg/person 105 Consumption 100 95 90 Production 85 July 10, 2009, USDA, PS&D database 0 e 09 /1 09 08 / 08 07 / 07 06 / 06 05 / 05 04 / 04 03 / 03 02 / 02 01 / 01 00 / 99 /0 0 80

8/12/09 Days of Use Average 4 05 /0 6 20 06 /0 7 20 07 /0 8 20 08 /0 9 20 09 /1 0 20 20 0 3 20 0 2 20 0 1 20 0 0 20 0 9 19 9 8 19 9 7 19 9 6 19 9 5 19 9 4 19 9 3 19 9 2 19 9 1 19 9 0 19 9 World Wheat: Days of Use on Hand 140 120 100 80 60 40 20 0

U. S. Wheat Supply and Demand, 8/12/09 +0 +72 -5 = +5 +25 +37

U. S. Wheat Use Source: USDA/ERS, WASDE, USDA , 2009/10 estimated Updated 8/12/2009

U. S. Wheat Stocks 000 bu 2 000 1 800 000 1 600 000 1 400 000 1 200 000 5 -year avg 1 000 2007/08 2008/09 800 000 2009/10 e 600 000 400 000 200 0 1 -сен 1 -дек 1 -мар 1 -июн

W ee k W 1 ee k W 3 ee k W 5 ee k W 7 ee W k 9 ee k W 11 ee k W 13 ee k W 15 ee k W 17 ee k W 19 ee k W 21 ee k W 23 ee k W 25 ee k W 27 ee k W 29 ee k W 31 ee k W 33 ee k W 35 ee k W 37 ee k W 39 ee k W 41 ee k W 43 ee k W 45 ee k W 47 ee k W 49 ee k 51 U. S. All Wheat Exports, MY to Date million bushels 1 300 1 200 1 100 1 000 900 800 700 600 500 400 300 200 100 0 2006/07 2007/08 2008/09 2009/10

Australia Canada Argentina 9/ 2 20 00 00 0 /2 20 00 01 1 /2 20 00 02 2 /2 20 00 03 3 /2 20 00 04 4 /2 20 00 05 5 /2 20 00 06 6 /2 20 00 07 7 /2 20 00 08 8 /2 20 00 09 9 /2 01 0 Production 19 9 9/ 2 20 00 00 0 /2 20 00 01 1 /2 20 00 02 2 /2 20 00 03 3 /2 20 00 04 4 /2 20 00 05 5 /2 20 00 06 6 /2 20 00 07 7 /2 20 00 08 8 /2 20 00 09 9 /2 01 0 19 9 Major High Quality Wheat Competitors and Exports 000 mt 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 0 Australia Canada Argentina

Euros per $US € 1, 30 1, 20 1, 10 1, 00 0, 90 0, 80 0, 70 0, 60 0, 50 0, 40 0, 30 0, 20 0, 10 0, 00 янв-01 янв-02 янв-03 янв-04 янв-05 янв-06 янв-07 янв-08 янв-09

Wheat Prices $ or € 12 € 0. 64/$1 10 8 6 € 1/$1 4 2 0 -01 янв € 0. 71/$1 € 1. 17/$1 -02 янв -03 янв -04 -05 янв $/bu -06 янв Euro/bu -07 янв -08 янв -09 янв

ENSO Alert System Status: El Niño Advisory Synopsis: El Niño conditions will continue to develop and are expected to last through the Northern Hemisphere Winter 20092010. During June 2009, conditions across the equatorial Pacific Ocean transitioned from ENSO-neutral to El Niño conditions. Sea surface temperature (SST) anomalies continued to increase, with the latest weekly departures exceeding +1. 0°C along a narrow band in the eastern equatorial Pacific (Fig. 1). All of the weekly SST indices increased steadily during June and now range from +0. 6°C to +0. 9°C (Fig. 2).

JFM Precipitation Anomalies (mm) and Frequency (%)

Northern High Plains Dryland Wheat Yields 40 35 Strong Episodes 30 25 20 15 5 0 Average = 21 bu/ac El Nino Average = 23 bu/ac Strong El Nino Average = 30 bu/ac 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10

Wheat Variable Costs and Grain Revenue $/acre 250 Good yields Good price 200 150 100 50 0 2003 2004 2005 2006 Total Costs 2007 2008 Grain Revenue 2010 crop: 20 bushel yield, $5. 45 BE (about $6. 10 on the board) 2009 2010 e

Grazing Rate to Break Even with Grain Production $0, 60 $0, 55 $ per pound of gain $0, 50 $0, 45 $0, 40 $0, 35 $0, 30 $4, 00 $4, 50 $5, 00 $5, 50 $6, 00 Wheat per Bushel Grazing = 5 bushel yield loss and +$4/acre costs $6, 50 $7, 00

Seasonal Price Index for U. S. Wheat June 1999 – May 2009 Marketing Year 7/10/09

July 2010 KC Wheat and Marketing Plan ¢/bu 800 Early season planting conditions Southern Hemisphere Crop Production 25% 750 Crop Emerging from Dormancy 25% Late Season Conditions 25% Harvest 25% 700 650 600 550 7. 11 . 2 0 10 10. 2 0 11 6. 10. 2 0 11 5. 4. 11 . 2 0 10 10. 2 0 11 3. 10. 2 0 11 2. 11 . 2 0 10 9 12 . 1 1 . 2 00 20 09 1. 10. 1 9. 11 . 2 0 09 09. 2 0 11 8. 09. 2 0 11 7. 6. 11 . 2 0 09 500

Marketing Philosophies • Ready, Aim, Aim, ……… • Ready, Fire, Aim! The man who insists on seeing with perfect clearness before he decides, never decides. Henri-Frédéric Amiel

How high? How long?

Outlook Reports Available JMWelch@ag. tamu. edu

Mark Welch, Economist—Grain Marketing JMWelch@ag. tamu. edu (979)845 -8011 http: //agecoext. tamu. edu/index. html