Market Information

Problem 1:  On September 17^th, the price guarantee for revenue-based crop insurance for wheat was established at $7.54. Analysist currently estimate that US farmers will react by seeding an additional 3 million acres above what they seeded a year ago, to the tune of 45.5 million acres. For perspective, US wheat acres peaked in 1981 at 88.3 million acres. But as shown in the chart below, even with lower acres, the yield trend is higher.

Problem 2:  Significant wheat is sequestered in Russia/Ukraine as a result of attacks on ports and ships in the Black Sea export region. One estimate is that approximately 25 mmt of wheat can’t get out of those countries. For perspective, the US produces a little more than 50 mmt. Let that sink in for a minute. While the conflict raised US prices in September, it is now apparent that there is significant price risk to US farmers IF any resolution in the Black Sea region can come about.

Problem 3:  As the Russia/Ukraine conflict continues, both countries are using alternative routes, albeit not as efficient as Black Sea routes, in order to get wheat out of both countries. Ukraine is shipping trucks and trains through the EU and to a Romanian Black Sea port. Russia is shipping to their Baltic Sea and Murmansk port. The port at Murmansk is interesting as it is north of the Arctic Circle yet is relatively ice free due to warm ocean flows from the south. All-in-all, shipping capacity via those routes are only 50% of what is needed. Taken in total, any resolution of the Russian/Ukraine conflict offers a significant risk to US price.

In summary, there are no upside sales targets, US wheat farmers will be mining their Insurance products for income.