At this writing, corn may be sold in the Oklahoma/Texas Panhandle region for about $4.30. This time last year, the cash price of corn was near $7.40 and Oklahoma/Texas Panhandle wheat prices were near $7.80, 40 cents higher than corn prices. Currently, wheat prices are near $5.90, or about $1.40 higher than cash corn prices.
Corn prices are not expected to support wheat prices. Actually, corn prices may serve as a magnet to pull wheat prices down.
One reason for the increased price spread between corn and wheat is excess corn stocks and relatively tight wheat stocks. Corn ending stocks are projected to be 1.63 billion bushels compared to a projection of 632 million bushels in February 2013.
Hard red winter wheat ending stocks are projected to be 194 million bushels compared to 304 million bushels this time last year. The five-year average of hard red winter wheat ending stocks is 337 million bushels.
Because of poor planting conditions and drought, the 2011, 2012 and 2013 hard red winter (HRW) wheat crops were expected to be below average. In actuality, only the 2011 and 2013 HRW wheat crops were below average. Hard red winter wheat 2011 production was 780 million bushels and 2013 production was 740 million bushels compared to a six-year average of 917 million bushels. 2012 HRW wheat production was 1.0 billion bushels.
United States total wheat production was also below average in both 2011 and 2013. Total U.S. wheat production was above average in 2012.
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Compared to U.S. wheat, world wheat production was just the opposite. World wheat production was above average in 2011 and 2013 and below average in 2012.
With below average U.S. wheat stocks and slightly below average world wheat stock, U.S. wheat prices are below average. World wheat production and stocks tends to trump U.S. wheat production and stocks.
The wheat market appears to be tempering the below average stocks situation with expected above average 2014/15 wheat marketing year U.S. and world wheat production.
For now, the bad news is that wheat prices are attempting to break through the KCBT Wheat contract $6 support prices. The KC March contract has reached $6.08 and the July contract $5.99. If the contract prices close below $6 two consecutive times, the contract target prices will be about $5.70.
For Oklahoma/Texas Panhandle wheat prices to increase, wheat production expectations must decline and actual production must be below average. The choice may be between relatively high production and relatively low prices or relatively low production and higher prices.
Another problem is that, over the last six years, U.S. wheat production has averaged only 8.9 percent of world wheat production. As experienced in 2011, 2012, and 2013, U.S. wheat production and stocks may be trumped by world wheat production and stocks.
Unless weather intercedes by reducing wheat production, wheat prices may be below average ($6.40) for the next two years. How low wheat prices go will depend on how much world wheat stocks increase in the 2014/15 marketing year.
During the last six years, the Oklahoma/Texas Panhandle lowest price ($3.08) was on June 10, 2010. It is unlikely prices will go that low.
Unless corn prices dramatically increase and/or there is a severe drought, wheat prices could drop to $5 during the 2014/15 marketing year. Hopefully, that $6 KCBT contract support price will hold.