Analysts: Low wheat prices mean 'dangerous market'

U.S. wheat prices have dropped to the point that next year's projected crop insurance price is at or below the cost of production, Northwest market analysts say.

Soft white wheat ranged from $6.75 to $7 per bushel on the Portland market.

"It's a game of high-stakes poker," said Dan Steiner, a grain market analyst in Boardman, Ore. "It's just a dangerous market, a guy's got to be careful. It's not like we've got buyers lined up."

The crop insurance price last year was $9.50 per bushel. Farmers with 80% coverage had a guarantee for 80% of that price on an average crop.

This year, the projected crop insurance price for next year is $7.93.

Dryland wheat farmers have a break-even price of about $7.50 to $8 per bushel, Steiner said.

Most farmers have 80% to 85% coverage, Steiner said.

"By the time you pay 80%, you're at or below the cost of production," he said.

Farmers may look for more profitable alternatives, if possible.

So far, demand for wheat has been on pace with USDA sales reports, he said.

"Being on pace with USDA is not going to get us over the hump, it's not going to get us where we need to go," he said. "We need to find some consumptive demand, and so far we can't find any. All we're finding is routine business."

Egypt - the world's largest wheat buyer - entered a tender for wheat the evening of Aug. 29. Fifteen exporters made 45 offers to sell wheat to Egypt.

"That is ridiculous - the depth and width of those bids is astounding," Steiner said. "It's like, you need to buy a house, you're walking down the street and everybody's willing to sell you their house. There's a lot of wheat looking for demand right now."

Timing is important, another analyst said.

"Right after harvest, supplies are the most plentiful, including the Northern Hemisphere," said Byron Behne, senior grain merchant for Northwest Grain Growers in Walla Walla, Wash.

U.S. wheat prices are too high for the export market, due to the Russia-Ukraine war and a smaller hard red winter wheat crop, he said.

"Now, everybody's got enough wheat at the moment," Behne said.

Short of something happening with the war "that the market cares about," Behne doesn't foresee a large rally coming into the winter.

He suggests trading in a price range of about $6.50 per bushel to $7 per bushel.

"It's hard to give (a farmer) advice, just because prices are low, but it's still volatile enough that if you tell somebody to sell today, tomorrow might be 10 cents higher," Behne said. "Or you tell someone to sell, the outlook's terrible, go ahead and dump it all, and then something happens with Australia or the war and provides a big rally."

Key competitor Australia likely won't have its fourth bumper soft white wheat crop in a row, but is still in "pretty good shape," Steiner said.

World supply is tightening, but the demand isn't there, he said.

"It's not going to be a fun market to trade," Steiner said. "This market is not deep. We need some demand to show up."