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Agricultural News

Kim Anderson Says Market Prices Point to Benefits of Adding Canola to Wheat Rotations

Tue, 12 Nov 2013 16:04:52 CST

Kim Anderson Says Market Prices Point to Benefits of Adding Canola to Wheat Rotations
With harvest over and Oklahoma's winter crops now in the ground, producers and economists are going over the numbers and determining just where we stand. Kim Anderson, Extension grain marketing specialist with Oklahoma State University was among those attending the Fall board of directors' meeting of the U.S. Canola Association taking place in downtown Oklahoma City. Radio Oklahoma Network Farm Director Ron Hays caught up with Anderson and they talked about the recently-released USDA reports and the impact of canola on Oklahoma producers. (You can listen to the conversation by clicking on the LISTEN BAR at the bottom of this story.)

Anderson said that one thing that surprised him following the release of the USDA's Crop Production report and the World Agriculture Supply and Demand Estimate report after the federal government shutdown was the closeness of trade estimates to the official numbers. He said the markets responded early with slightly higher prices, but as the reports are digested, those increases may not hold.

"Looking at the market reaction, you've got a 30-plus cent increase soybean prices, you've got a 20-plus cent increase in corn prices, but reading the trade's response to the report, especially with corn, the trade thinking right now is that corn price increase may be short lived, that we haven't seen the bottom in corn prices yet, that in the near future corn prices will probably come back down lower than their level of before the report."

Some analysts had expected the reports to show slightly lowered corn acres, Anderson said, and they were surprised when the numbers came in lower than what they had calculated from the reports of insured acres. He said that's why grain prices may have jumped after the reports were released.

Anderson said that the increase of the world corn crop and its impact on ending stocks stands in opposition to what analysts had expected. He said conventional wisdom used to be that it took two years to rebuild corn ending stocks and one year to rebuild wheat stocks.

"I think that in today's environment, it's reversed. I think it's going to take two years or more to build the wheat stocks, but corn stocks in both the United States and the world is being rebuilt and surpassed in one year."

Anderson said he expects the closing stocks number for corn to have an impact on wheat producers as we move from the current crop into next year's crop.

"My estimates last year were the tight corn stocks added anywhere from 75 cents to $1 to the wheat price. The numbers that have been falling out recently indicate that it was probably around 80 to 85 cents. That's 80 to 85 cents on the wheat price that we're not going to have next harvest in June of 2014.

"I do think that this report on wheat sets the stage for significantly higher wheat prices in 2014 because we've got well-below-average ending stocks projected in the United States, we've got slightly-below-average ending stocks projected in the world. If something happens that we have a below-average U.S. and/or world production of wheat, that wheat price is going to increase dramatically. Now, if we have above-average production our prices are going to stay at current levels or slightly less. Right now, I'm predicting about $6 to $6.25 for the June 2014 wheat price in Oklahoma."

With canola gaining ground as a truly viable crop in rotation with wheat in Oklahoma, Anderson said that will definitely impact the bottom lines of producers.

"I think the opportunity is here now for a rotation crop with wheat. We needed it for a long time. We needed to break that disease cycle. We needed to break that weed cycle. And what we've seen over the last two years in wheat-we've seen a well-above-average basis that gives us a higher price than we would have had otherwise because we had a good protein, high-quality product to sell on the world market. If we don't clean up the wheat in Oklahoma, if we don't have good protein, if we don't have milling-quality wheat, we're not going to be able to sell our wheat like we could back in 2009 and 2010. So, with canola, we've got the opportunity to rotate our crops, to clean up our fields. It's going to increase our wheat yields. It's going to increase the quality of our wheat and it's going to give us more marketing opportunities."

With current canola prices where they are, Anderson said adding it to a rotation with wheat in Oklahoma makes economic sense.

"If you pencil it out, your canola will give you a slightly better profit per acre than wheat. That price situation could change, but you can forward contract right now canola for about $9.75 for June delivery. You can forward contract wheat for June delivery somewhere around $6.70 to $6.75 cents a bushel. It costs a little more to produce the canola, but you get more for it. Plus, you're going to get higher yields and better production for your wheat in the future which is going to make that wheat more competitive with canola."


Kim Anderson speaks with Ron Hays at the U.S. Canola Association's meeting in Oklahoma City.
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