The answer to whether wheat prices have peaked depends on Argentine and Australian wheat production. Argentina’s wheat production estimate has been relatively stable at 533 million bushels. Australia’s wheat production has been the big question. Trade estimates are between about 400 million bushels and almost 600 million bushels (11 to 16 million metric tones). The October USDA estimate was 496 million bushels (13.5 million metric tones).
Wheat prices have declined $1.17 from the KCBT December wheat contract’s Oct. 1 peak of $9.50. Oklahoma and Texas cash prices peaked at about $8.96. During the last three weeks, the basis has remained at about a minus 53 cents off the KCBT December contract price.
During the same time period, Oct. 1 to Oct. 17, both the KCBT July wheat contract price and the June 2008 forward contract price offer declined 30 cents.
At this writing, the KCBT December 2007 wheat futures contract price was $8.33 compared to the July wheat contract price of $6.71. There is a $1.62 spread between KCBT December 2007 wheat contract prices and the KCBT July 2008 wheat prices.
The $1.62 price spread is also applicable to the current cash price and the forward contract price offer for June 2008 delivered wheat. The current cash basis is a minus 53 cents off the KCBT December contract price and the June 2008 forward contract basis offer is about a minus 53 cents off the KCBT July wheat contract price.
The current cash price basis (-53 cents) is about 30 cents less than last year’s basis (-24 cents) and the 5-year average basis (-23 cents). The lower basis reflects increased transportation and handling costs and increased price risk.
The June 2007 average basis was a minus 43 cents. The 5-year average June basis is a minus 27 cents and the 10-year average basis is a minus 34 cents.
The odds of the KCBT July 2008 establishing new highs are greater that the odds of the KCBT December contract making new highs. The December contract price depends on the Argentina and Australian wheat harvests, which will be in November and December.
After the Argentine and Australian wheat harvests, the U.S. winter wheat crop is the next exportable crop to be harvested. With the tight stocks, the world needs the wheat that will be harvested in June and July of 2008.
United States wheat 2007-2008 ending stocks are projected to be the lowest since the 1948-1949 wheat marketing year (307 million bushels). World wheat ending stocks are projected to be the lowest since the 1975-1976 marketing year.
Anything that appears to reduce the U.S. 2008 winter wheat crop will result in higher KCBT July wheat contract prices. The first factor that has the potential to lower production is planting problems in Kansas and Oklahoma.
In Oklahoma, the planting problems have been dry topsoil, seed shortage, volunteer wheat and seedbed preparation. Recent rains have alleviated some of the moisture problem. The rain did pack some fields that had been “dusted-in” and now the producers are searching for seed.
Kansas planting problems have been too much moisture and a shortage of quality seed. These problems make favorable weather for establishing the wheat crop essential.
Favorable weather and an above average U.S. winter wheat crop could result in the KCBT July wheat contract price declining up to $1 or unfavorable weather could result in the July contract price increasing $1.50. Only time will tell.
Prudent producers will develop a written marketing plan. The key is to develop a plan that allows them to sleep at night.