Kansas City Board of Trade (KCBT) December wheat contract prices have been trading in a sideways price pattern between $8.69 and $9.57 since July 13 (Friday the 13th). Chicago Board of Trade (CBT) December corn contract prices have been in a sideways price pattern between $7.33 and $7.76 since September 28. Few market signals are indicating that wheat or corn futures prices will break out of the sideways patterns in the near future.
Also interesting to note is that the KCBT December 2013 wheat contract price is about 8 cents above the KCBT December 2012 wheat contract price. This implies that the market believes 2013 wheat production will not be sufficient to change the current wheat supply, demand, and price situations.
Corn is a different story. The CBT December 2013 corn contract price is about $1.10 less than the CBT December 2012 corn contract price. As has been reported over the last month, the market expects that 2013 corn production will be sufficient to build corn stocks.
Most market chatter affects distant prices and has little to do with current market prices. The chatter includes U.S. winter wheat and corn production area drought conditions, wheat production in Argentina and Australia, foreign wheat stocks and exports, and corn plantings in Argentina and Brazil.
About the only market factor that has the potential to affect nearby wheat prices is Argentina’s and/or Australia’s wheat production. Both of these harvests are in progress and will continue through December.
Once Argentina’s and Australia’s wheat harvests are complete, the next major exportable harvest is the 2013 U.S. winter wheat crop. India will harvest wheat in March and April, and a small portion of Indian wheat may be exported. However, India’s wheat exports should have little price impact.
U.S. planted winter wheat acres for the 2013 crop are expected to be higher than for the 2012 wheat crop. The major increase in acres is expected to be for soft red (SRW) winter wheat. A small increase in hard red winter (HRW) wheat planted acres may occur due to the drought and early harvested or abandoned summer crops.
The problem is about 60 percent of the winter wheat area is in extreme to exceptional (the highest two levels) drought. The 90-day temperature forecast is for above average temperatures over nearly all of the HRW wheat area. Normal temperatures are projected for the SRW wheat area.
Nearly all of the U.S. winter wheat area is projected to have average precipitation. To break the drought, well above average precipitation is required.
Given the drought and the forecast, the odds of an average HRW wheat crop are well below 50 percent and are, at best, 50/50 for SRW wheat.
Some market analysts are expecting 2013 corn planted acres to be more than 2012’s 96.9 million acres. Assuming an average yield of 165 bushels per acre, corn production would near 15 billion bushels, and 2013/14 marketing year ending stocks could be 1.6 billion bushels or higher.
The CBT December corn contract price is $7.51. CBT corn contract prices are expected to hold through July. The CBT May corn contract price is $7.49 and the July contract price is $7.40. Corn prices fall to $6.66 for the September 2013 corn contract and $6.09 for the December contract.
If the 2013 U.S. winter wheat crop is larger than expected, corn prices should support wheat prices until the August/September time period. If the 2013 U.S. winter wheat crop is well below average, wheat prices will not need corn price support.
Until a surprise happens in the markets, expect wheat and corn prices to aimlessly wallow around. Unless the drought is broken within the next six weeks, corn has more downside price risk than wheat.