The phone rings. I answer by saying, “This is Kim,” and the person on the other end says, “Kim! Are wheat prices going to rally anytime soon?” Hearing this, I know two things. The person calling has wheat to sell and they know that the wheat should have already been sold.
Fact is they know that the wheat could have been sold at harvest for $3.40 and that the current net price is $2.87. The cash price is $3.19. Storage cost is about 21 cents and the government loan interest cost is about 12 cents per bushel.
I know that as soon as I say, “There is no reason for wheat prices to rally,” there will be a catastrophe somewhere and wheat prices will increase 50 cents. Kind of puts us in the same position. We're both afraid of being wrong. The cost to the producer is money. My cost is pride.
We don't know if the world will end tomorrow, however we can sure play the odds. The odds are that time will continue and that tomorrow will be a whole lot like today. Over time things change and “the more things change, the more they stay the same.” This sounds like an economist — doesn't it?
In the wheat market, current signals indicate that prices will not rally and will probably decline between now and harvest. One signal is Kansas City Board of Trade wheat contract prices. The KCBT March contract price is $3.29 compared to a July contract price of $3.11. This implies an 18 cent price decline due to lower futures contract prices.
The current central Oklahoma and Texas panhandle cash price ($3.19) is about 8 cents above the KCBT July wheat contract price ($3.11). Thus the cash price basis KCBT July is a plus 8 cents ($3.19 - $3.11).
Wheat may be forward contract for harvest delivery at 35 cents less than the KCBT July wheat contract price ($3.11 - $0.35 = $2.76). This means the cash price is expected to decline 43 cents between now and harvest ($3.19 - $2.76).
The market is basing these price offers on wheat stocks, expected wheat demand and the current condition of the 2005 winter wheat crop. Wheat stocks are slightly higher than at this time last year. Market analysts know, with a high degree of certainty, what wheat stocks and demand will be between now and June.
The unknown is 2005-06 wheat marketing-year wheat production. United States winter wheat planted acres are about 4 percent less than last year. Hard red winter wheat planted acres are 1 percent less and soft red winter wheat planted acres are 19 percent less than last year.
Wheat conditions are mostly good to excellent. Current conditions indicate that yield will be equal to or above the 44.2 bushel per acre average and greater that last year's 43.5 bushels per acre.
Reports indicate that Chinese producers planted about 4.5 percent more wheat acres and that Canadian producers plan to plant 4 percent more acres to wheat. Foreign wheat planted acres are expected to be equal to or higher than last year.
Wheat planted acres and crop conditions support lower prices between now and harvest.
“Will there be any price rallies between now and harvest?” There will be 5 to 10 cent rallies. The rallies are probably not worth waiting on.
Producers need to avoid the situation where they are forced to depend on price outlook to make marketing decisions. This situation may be avoided by developing written market plans and following the plans.
Producers follow plans on soil fertility, planting dates, disease, weed and insect control and about every other production decision. The same works with marketing. Producers cannot control the weather and they cannot control prices.