The Learn About Futures Insider for October 20, 2011: Wheat (Part 3)

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***data courtesy USDA/NASS

***data courtesy USDA/NASS

Price highlights for this market include:

* Wheat prices fluctuated in early US, and farmers sometimes had to request government help to try to control or stabilize the values of the cereal crop. Downward pressure was seen on prices in the late 19th century due to the advent of more advanced mechanical planting, harvesting, and threshing machines. Gas powered machines helped lead to record 1.0 billion bushels of production in 1915.
* In the later part of the 19th century, shortages in Europe and India had helped bring prices up over $1 per bushel. World War I led to price movements above $3 a bushel. Strong global demand for American wheat exports coupled with high prices in the early 20th century, prompting farmers to increase production area. This led to a large surplus, and many farmers again seeking government help in supporting prices.
* Wheat prices were below $2 per bushel in the early 1970s. Late in 1972, news of a 400 million bushel deal with Russia caused prices to rally. Prices continued to jump as strong international demand and low crop expectations helped spur buying. By the middle of 1973, prices had soared to levels not seen in 150 years, up over $4 per bushel.
* Depleted wheat stocks led to talk of lifting import tariffs in 1974, bringing some price pressures, but the value per bushel did not revisit the $3 level for an extended period until late 1976. By 1977, prices were just above $2 a bushel as the USDA estimated a large wheat crop for the second year in a row and the largest wheat surplus in 14 years.
* Grain support prices help lift the per bushel values of wheat through the early 1980s. Prices would eventually peak above $5 per bushel.
* In 1996, wheat broke above the record 1974 price of $6+ per bushel on a combination of poor winter wheat growing conditions, low stocks, and a controversial spike in prices from one trading session. Prices were up above $7 per bushel that year but would revisit prices below $3 before the end of the decade.
* In 2007-2008 global wheat prices soared as the essentials cereal crop saw acreage shifted in favor of corn and soybeans, leading to lower production and supplies. Prices would eventually top out at $13.34 per bushel before coming back down on forecasts for increased production.
* In 2010, excessive drought in key growing areas and fires in Russia cut into global wheat production forecasts, leading to suspension of exports from the Black Sea area. Drought in US and European growing areas during the winter wheat season further charged prices, leading them back over $8 per bushel.

Key terms for the wheat market include:

Gluten - a protein found in wheat (and barley and rye) that makes dough elastic and chewy.
Protein content - soft wheats have around 10% protein content and higher starch levels. Hard wheats have around 15% protein. These levels are relevant to help determine whether or not the wheat would be suitable for bread or pasta.
Yield per acre - describes how many bushels are produced per acre. This can vary based on irrigation, weather, moisture, and kind of wheat.

Key Uses

Wheat can be processed into many consumer goods for consumption, from flour and pasta to malt. Each species of wheat may have particular protein, carbohydrate, and fiber levels; among the classifications used in the United States, uses may include the following:

Hard Red Winter Wheat – bread flour

Hard Red Spring Wheat – (high protein levels) bread flour and blending with lower protein wheat

Soft Red Winter Wheat – flour for baked goods such as cakes and cookies

White Wheat – flour for noodles, cereals, crackers, and white breads

Durum Wheat – pasta flour

Milled wheat byproducts like seed coats are used in the production of animal feed.

Part 2
The Learn About Futures Insider for October 20, 2011: Wheat (Part 2)