In the April 21 Wheat Scoops article, the June 20 wheat price prediction was raised from $2.60 to $2.80. The higher price prediction was based on 2005/06 U.S. wheat production of 2.05 billion bushels, exports of 1.0 billion bushels and 550 million bushels ending stocks. World wheat production was projected to be 21.6 billion bushels and ending stocks 5.4 billion bushels.
Some reports indicate that these U.S. and world wheat production estimates may be low. If the production estimates are low, then the $2.80 price prediction for harvest delivered wheat is too high.
Informa (formally Sparks Commodities) estimated 2005/06 U.S. wheat production at 2.169 billion bushels and predicted the 2005/06 average annual wheat price to be $3. United States wheat production of 2.169 billion bushels or more could result in a June 20 price of $2.60.
In February, the USDA estimated U.S. 2005/06 wheat production at 2.085 billion bushels and the average annual 2005/06 price at $3.20. Official USDA 2005/06 marketing-year crop supply and demand estimates will be released on May 12.
At this writing, the Kansas City Board of Trade July wheat contract price is $3.22. Elevators in central Oklahoma and the Texas panhandle are offering 35 to 40 cents less than the KCBT July wheat contract price for harvest delivered wheat. This implies that the market is offering $2.82 to $2.87 for harvest delivered wheat.
The KCBT July wheat contract appears to be trading in 20-cent increments. Currently the July contract is trading between $3.10 and $3.30. Two consecutive closes above $3.30 will imply that the next July contract price target is $3.50 and that the $2.60 price prediction for June is too low.
Two July wheat contract price closes below $3.10 will imply that the $2.80 price forecast is too high.
The KCBT December wheat contract price is $3.39 and the 5- and 10-year average November basis in central Oklahoma and the Texas panhandle is about minus 30 cents. This implies that the market is offering $3.09 for wheat delivered next November. This is consistent with Informa's average annual price prediction of $3.
The KCBT December wheat contract also appears to be trading in 20-cent price increments. Support and resistance points are at about $3.25, $3.45, $3.65 and $3.85. It takes two consecutive closes to complete a move from one price range to another.
The most recent USDA crop progress report indicated that 2005 winter wheat conditions are significantly better than last year. Sixty-nine percent of the crop is considered “Good to Excellent” compared to only 46 percent last year.
Lack of rain in Texas and Oklahoma during March and April is starting to stress these wheat crops. Lower production in Texas and Oklahoma may impact the market price in two ways.
First is that the June 20 wheat price will be higher than the $2.60 price prediction. Second is that the harvest price decline will be delayed until the harvest reaches Kansas.
Between now and harvest, a lot can happen to both the U.S. and world wheat crops. The U.S. harvest is mostly in June and July and the foreign wheat harvest is mostly in August and September. Argentina and Australia harvest wheat October through December. The 2005/06 wheat price trend will probably be set in late August and early September.
With the market offering about $2.80 for harvest delivered wheat and the market loan about $2.78, there is little reason to price 2005 harvest wheat now. The LDP and loan offer price protection below $2.78 thus, from current market price levels, there is only the potential for higher prices.
It is import that producers develop a written marketing plan for selling 2005 wheat production. The plan may be modified because of changing market conditions. The only time a plan cannot be modified is if there is no plan.