Producers want to know “how low will cash wheat prices go?” Technical analysis indicates that the Kansas City Board of Trade July wheat contract price may decline from $6.63 to $6.37 (26 cents). If the July contract price goes below $6.37, the next target price may be $6.10.
The wheat market is using the Kansas City Board of Trade July wheat contact price to establish a local elevator cash wheat price. To establish a local wheat price, elevators adjust the KCBT July wheat contract price by transportation and handling costs plus a profit margin. The adjustment is called the basis.
For example, the basis at Perryton, Texas is minus 35 cents while the basis at Weatherford, Oklahoma is a minus 47 cents. At this writing, the KCBT July wheat contract price is $6.63. The Perryton cash price is $6.28, and the Weatherford cash price is $6.16.
As the KCBT futures contract prices change, the cash price changes the same amount.
In recent weeks, the KCBT July wheat contract price declined from $7.15 to $6.37, a 78-cent price decline.
During the same time period, wheat prices at Perryton Texas declined from $6.80 to $6.02; the same 78-cent decline. If the KCBT July wheat contract declines, cash wheat prices will decline. If the KCBT July wheat contract price increases, cash wheat prices will increase.
As mentioned above, the KCBT July wheat contract price has the potential to decline from $6.63 (price at this writing) to $5.60 (-$1.03). This fact suggests that the Perryton Texas cash price has the potential to decline from $6.28 (cash price at this writing) to $5.25.
The Weatherford cash price has the potential to decline from $6.16 to $5.13. Prices could possibly decline more than 87 cents, but the odds of that happening are relatively small.
Conversely, the potential exists for prices to increase unexpectedly. High prices could be the result of continued declines in U.S. or foreign wheat production and/or the U.S. dollar losing value relative to other major foreign currencies.
Technical analysis indicates that the KCBT July wheat contract price has resistance at $6.65, $6.87 and $7.15. This indication implies that, in the next few weeks, cash prices have the potential to increase about 52 cents.
Wheat prices have a tendency to decline during late June through early August and then increase into December/January. The price increase between June and December tends to be less than the cost to store wheat in commercial storage and pay the lost interest (production loan interest rate).
The marketing-year (June 1 through May 31) price trend is normally established in late August and early September, during the U.S. and Canadian spring wheat and European wheat harvest.
Producers who can’t afford to sell wheat at lower prices should consider selling a high percentage of their wheat at current prices. Producers who can afford lower prices may want to sell one-third of their wheat now, one-third in September/October, and the final one-third in November/December.