They are told of many contributing factors — full bins at the ports, low protein content, no storage capacity, weather at harvest — that can share the blame, but it all comes back to “supply and demand.” The world has an overly abundant wheat supply right now, said Robert Duncan, state small grain specialist at Texas A&M University at College Station.
“The bottom line is our buyers are looking for a 12 percent protein content, and most of the wheat in West Texas is averaging 11 percent or below,” said Jason Jacoby, a stock farmer and owner of Jacoby Feed & Seed at Melvin. “If the protein is 11 percent or below, they are discounting it anywhere from 50 cents to 60 cents per bushel.”
David Holubec, who farms near Melvin, about 60 miles southeast of San Angelo, says farmers need at least $5 to $6 per bushel just to break even.
“Producers have been told the low protein content in this year’s crop needed to be higher than 12 percent, but if the world’s wheat supply was low, the protein factor wouldn’t be a problem,” Duncan told about 200 area farmers during the Southern Rolling Plains Summer Crops Conference here recently.
More than 54 million acres of wheat with average yields of 35 bushels per acre is a record for Texas, Duncan said. But high yields enviably produce low protein. The unusually wet winter produced great yields yet a mature grain with nitrogen deficiency.
The unprecedented market conditions of the global economy, level of demand and the increase in buying power of foreign currencies are at the bottom of the present situation, said Mark Welch, also an economist with Texas A&M at College Station.
“What has happened to the basis?” Welch asked. “The basis is defined as the difference between the local cash price and the futures price (cash – futures = basis).”
He said the basis applies whether the cash wheat price at the local elevator or export bids at the port of Houston are considered. Location and related transportation costs are usually considered to be the primary explanation for the basis level in a given market area.
“Other factors also have an influence on the basis,” Welch said. “These include storage capacity, government programs, weather at harvest, and general market conditions. Changes in the basis can often tell us about changes that are occurring in the overall level of demand in the marketplace.”
Cash bids for Texas wheat are the lowest in memory. The basis is below $1.00 per bushel across the state with some areas reporting basis as low as -$1.40.
“An additional factor pushing this year’s basis levels to record lows may be the economic situation in Europe,” Welch said. “Concerns over the abilities of several governments in the European Union to meet their debt obligations have weakened the financial situation, dampened expectations for economic recovery from the recent recession, and pushed the euro to its lowest levels in over four years.”
On May 1, U.S. hard red winter wheat in Kansas City was quoted at $5.13 per bushel while European milling wheat futures were 135 (euro units) per ton. Wheat is converted at approximately 36.5 bushels per metric ton, which puts the U.S. dollar price per metric ton at $187.25.
Exchange rates at that time priced U.S. wheat in Egyptian pounds at 28.70 EGP per bushel and wheat from Europe at 27.33 EGP per bushel, a 1.37 EGP advantage for Europe before transportation costs. Priced in Japanese yen, U.S. wheat was 483.15 yen/bu and European wheat was 460.10 yen/bu., advantage Europe by 23.05.
“Japan does not traditionally import wheat from Europe, instead preferring the quality of U.S. wheat,” Welch said. “However, this situation may change if protein levels in this year’s crop are below normal.”
A shortage of railcars and elevator storage added to the problem, which Steelee Fischbacker, communications director for the Texas Wheat Growers Association, called the “perfect storm” or the coming together of circumstances that had growers getting next to nothing for their wheat.
