wheat marketing and risk management wheatheart wheat conference perryton, texas august 13, 2009 mark...
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Wheat Marketing and Risk Management
Wheatheart Wheat Conference
Perryton, TexasAugust 13, 2009
Mark WelchGrain Marketing Economist
Hang on or let go?
Market Drivers
“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
Pumping ethanol from corn in 1933
• Economy• Demand
– Exports– Feed– Food
• Supply– Export
Competition– Planted Acres– Weather
FEARFlat
Adequate
Value of Wheat in a Loaf of Bread
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 $1.20 $1.30 $1.40 $1.50
Price of Bread Value of Wheat Avg U.S., white bread, 1-lb loaf KC HRW, Ordinary Protein
1980 2009$0.51 Average Price of a Loaf of Bread $1.40$4.25 Average Price of Wheat $6.63$0.06 Value of Wheat in a Loaf of Bread $0.09$0.46 Value of Other Factors in a Loaf of Bread $1.31 11% Value of Wheat in a Loaf of Bread, % 6%
Global Economic Growth
-6
-4
-2
0
2
4
6
8
10
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
2011
2012
2013
2014
Per
cent
Cha
nge
Advanced Economies Emerging and Developing Economies World
Real GDP Growth, 1980 - 2014
As of April 2009
Source: http://www.imf.org/external/datamapper/index.php; 2009-2014 projections
Global economic growth is being driven by developing nations.
World Per Capita Grain Use
1970
/197
1
1972
/197
3
1974
/197
5
1976
/197
7
1978
/197
9
1980
/198
1
1982
/198
3
1984
/198
5
1986
/198
7
1988
/198
9
1990
/199
1
1992
/199
3
1994
/199
5
1996
/199
7
1998
/199
9
2000
/200
1
2002
/200
3
2004
/200
5
2006
/200
7
2008
/200
9250
260
270
280
290
300
310
320
330
340
350
corn, barley, sorghum, rye, oats, millet, mixed grains, wheat, rice
kg
7/10/09
World Per Capita Consumption
99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/100
20
40
60
80
100
120
140
Soybeans Wheat Corn Rice
+1.3%
+3.3%
-0.1%
+0.6%
Kg
Updated 7/10/09
+16%
-3%
-0%
+29%
Yr to Yr 11-yr
Annual World Per Capita Wheat Production and Consumption
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0e80
85
90
95
100
105
Production
Consumption
Kg/person
July 10, 2009, USDA, PS&D database
World Wheat: Days of Use on Hand
19901991
19921993
19941995
19961997
19981999
20002001
20022003
2004
2005/06
2006/07
2007/08
2008/09
2009/10
0
20
40
60
80
100
120
140
Days of Use Average8/12/09
U.S. Wheat Supply and Demand, 8/12/09
0
500
1,000
1,500
2,000
2,500
3,000
BeginningStocks
Production Imports Domestic Use Exports Ending Stocks
million bushels
08/09 09/10 May 09/10 Jun 09/10 Jul 09/10 Aug
+0 +72 -5 = +5 +25 +37
U.S. Wheat Use
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
80/81
81/82
82/83
83/84
84/85
85/86
86/87
87/88
88/89
89/90
90/91
91/92
92/93
93/94
94/95
95/96
96/97
97/98
98/99
99/00
00/01
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
e
09/10
e
Million Bushels
Ending Stocks Feed and Residual Exports Food, Seed, and Industrial
Source: USDA/ERS, WASDE, USDA , 2009/10 estimated
Updated 8/12/2009
U.S. Wheat Stocks
1-Sep 1-Dec 1-Mar 1-Jun0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
5-year avg2007/082008/092009/10e
000 bu
U.S. All Wheat Exports, MY to Date
Wee
k 1
Wee
k 3
Wee
k 5
Wee
k 7
Wee
k 9
Wee
k 11
Wee
k 13
Wee
k 15
Wee
k 17
Wee
k 19
Wee
k 21
Wee
k 23
Wee
k 25
Wee
k 27
Wee
k 29
Wee
k 31
Wee
k 33
Wee
k 35
Wee
k 37
Wee
k 39
Wee
k 41
Wee
k 43
Wee
k 45
Wee
k 47
Wee
k 49
Wee
k 51
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
2006/07 2007/08 2008/09 2009/10
million bushels
Major High Quality Wheat Competitors
Production and Exports
1999
/200
0
2000
/200
1
2001
/200
2
2002
/200
3
2003
/200
4
2004
/200
5
2005
/200
6
2006
/200
7
2007
/200
8
2008
/200
9
2009
/201
00
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Australia Canada Argentina
1999
/200
0
2000
/200
1
2001
/200
2
2002
/200
3
2003
/200
4
2004
/200
5
2005
/200
6
2006
/200
7
2007
/200
8
2008
/200
9
2009
/201
00
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Australia Canada Argentina
000 mt 000 mt
Euros per $US
Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-090.000.100.200.300.400.500.600.700.800.901.001.101.201.30
€
Wheat Prices
Jan-01Oct-01
Jul-02Apr-03
Jan-04Oct-04
Jul-05Apr-06
Jan-07Oct-07
Jul-08Apr-09
0
2
4
6
8
10
12
$/bu Euro/bu
€1.17/$1
€0.64/$1
€1/$1
€0.71/$1
$ or €
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 2009-2010.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 latestweekly 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
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
0
5
10
15
20
25
30
35
40 Strong Episodes
Average = 21 bu/acEl Nino Average = 23 bu/acStrong El Nino Average = 30 bu/ac
Wheat Variable Costs and Grain Revenue
2003 2004 2005 2006 2007 2008 2009 2010e0
50
100
150
200
250
Total Costs Grain Revenue
$/acre
2010 crop: 20 bushel yield, $5.45 BE (about $6.10 on the board)
Good yields Good price
Grazing Rate to Break Even with Grain Production
$4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00$0.30
$0.35
$0.40
$0.45
$0.50
$0.55
$0.60
Wheat per Bushel
$ per pound of gain
Grazing = 5 bushel yield loss and +$4/acre costs
7/10/09
Seasonal Price Index for U.S. WheatJune 1999 – May 2009 Marketing Year
80
90
100
110
120
J J A S O N D J F M A M
Per
cen
t of
Ave
rage
5-year 10-year
July 2010 KC Wheat and Marketing Plan
6/11
/200
9
6/22
/200
9
7/3/
2009
7/14
/200
9
7/25
/200
9
8/5/
2009
8/16
/200
9
8/27
/200
9
9/7/
2009
9/18
/200
9
9/29
/200
9
10/1
0/20
09
10/2
1/20
09
11/1
/200
9
11/1
2/20
09
11/2
3/20
09
12/4
/200
9
12/1
5/20
09
12/2
6/20
09
1/6/
2010
1/17
/201
0
1/28
/201
0
2/8/
2010
2/19
/201
0
3/2/
2010
3/13
/201
0
3/24
/201
0
4/4/
2010
4/15
/201
0
4/26
/201
0
5/7/
2010
5/18
/201
0
5/29
/201
0
6/9/
2010
6/20
/201
0
7/1/
2010
7/12
/201
0500
550
600
650
700
750
800
¢/bu
Early season planting conditions Crop Emerging Late Season Southern Hemisphere Crop Production from Dormancy Conditions Harvest 25% 25% 25% 25%
Marketing Philosophies
• Ready, Aim, Aim, Aim, 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?
