Since mid-June, the wheat price trend has been down. Wheat prices for the 2004/05-wheat crop peaked on March 22 with the KCBT July wheat contract price at $4.28 and the potential forward contract price at about $3.93. Some elevators were forward contracting for June delivery at 35 cents less than the KCBT July contract price (-35 cents basis KCBT July or -44 cents basis KCBT Dec).
The central Oklahoma and Texas Panhandle wheat price on June 21 was about $3.50 per bushel. The KCBT December wheat contract price was $3.94 and the basis was minus 44 cents (-44 cents basis KCBT Dec). Thus the cash price was 44 cents less than the KCBT December wheat contract price.
By August 13, wheat prices had fallen to $2.94. The KCBT December contract price was $3.28 and the basis was a minus 34 cents. Wheat price increased to $3.48 on Sept. 21 and the basis had increased to a minus 15 cents.
Note that the basis improved from minus 44 cents in June to minus 15 cents in October. This is a 29-cent price increase due to the basis.
At this writing, the cash price is $3.22, the KCBT December contract price is $3.37. While there has been a 54-cent price range since June 21, each price peak has been lower than the last peak, thus the price trend is down.
The stage is set for wheat prices to slowly decline into the 2005 wheat harvest. Factors setting this stage are higher wheat stocks, higher wheat planted acres and record corn and feed grain stocks.
While both U.S. and world wheat ending stocks are below average, the market may not require stocks to be as high as required 10 to 15 years ago. The world wheat storage and transportation system is more efficient and more countries are exporting wheat. Importers have more countries to buy from and exporting countries have improved their marketing systems.
Early winter wheat planting reports indicate that foreign winter wheat planted acres may be higher than last year and U.S. winter wheat planted acres may be the same or slightly higher.
Corn prices are projected to average 45 cents per bushel less than last year. United States corn production is projected to be 11.6 billion bushels compared to last years' record 10.1 billion bushels and a 5-year average of 9.6 billion bushels.
World corn production is projected to be a record 26.9 billion bushels compared to a 5-year average of 23.7 billion bushels. One salvation for corn is that world consumption is projected to be 26.7 billion bushels. World corn consumption has increased from 23.6 billion bushels in 2000 to 26.9 billion this year.
Large corn stocks and relatively low corn prices have been factored into wheat prices. The wheat market is now watching Southern Hemisphere wheat production, especially Argentina and Australia, and the 2005 winter wheat crop.
Argentina is projected to produce 533 million bushels compared to a 5-year average of 543 million bushels. Australia is projected to produce 863 million bushels compared to 916 million bushels last year and a 5-year average of 781 million bushels.
World wheat stocks are still tight enough that reduced wheat production in Argentina or Australia will have a positive impact on wheat prices. However, this has been the year that production expectations have been met or exceeded.
One other concern is that producers have stored a higher than normal percentage of the wheat crop. This has resulted in an above average basis (-15 cents compared to a 5-year average of -30 cents). Producer selling could result in lower basis, thus having a negative price impact.
Key KCBT December wheat contract prices are $3.30 and $3.50. KCBT December contract prices below $3.30 imply cash prices near $3. KCBT December prices above $3.50 imply cash prices near $3.40.