If the KCBT December contract price goes below $3, kiss wheat prices good-bye.
Unexpected low export demand has resulted in wheat prices about 40 cents per bushel lower than projected. Some market analysts are saying that it may be after Jan. 1 before prices increase. I think prices will increase before then, but I will be wrong if Argentina and Australia have larger than expected wheat crops.
As of Sept. 1, only 352 million bushels of U.S. wheat had been sold for export. This time last year, 400 million bushels had been sold. Each marketing year by mid-September, one-half of annual wheat export-sales have been sold.
Unless export demand picks up dramatically, U.S. wheat exports are not going to reach the 1.05 billion bushels predicted by USDA.
During the last 20 years Argentina has been the only major exporting country that exported all of its excess production. New to the export scene are developing countries that are exporting wheat that they cannot store. Most of these countries are located in Eastern Europe and the former Soviet Union and ship wheat out of Black Sea ports.
Wheat being exported out of the Black Sea is equivalent to soft red winter and is priced at about $2.54 per bushel. Soft red winter wheat shipped out of the Louisiana gulf is priced at about $2.91, and French wheat sold at an export facility is about $2.88 per bushel.
Another advantage of Black Sea wheat is that transportation costs to North African countries are lower than from U.S. or French ports. Egypt, the No. 1 importer of U.S. wheat, bought wheat from Turkey last year and is buying some Black Sea wheat this year.
The Black Sea wheat exporters are taking demand from the major wheat exporters (Argentina, Australia, Canada, European Union, and the United States). This has resulted in lower than expected prices and producers storing wheat for higher prices.
Another reason for lower prices is Argentina's increase in wheat, corn and soybean acres and production. Wheat planted acres are projected to be 12 percent higher than last year. Wheat production is projected to be 661 million bushels compared to 606 million last year.
Argentina's wheat exports are projected to be 477 million bushels compared to 423 million last year and a five-year average of 480 million bushels. One hundred million bushels above average exports implies that other exporting countries (i.e. the United States) will export 100 million bushels less.
Australia's wheat production is projected to increase about 12 million bushels to 790 million. Australia's exports are projected to increase 13 million bushels.
Reports indicate that producers in the European Union are holding wheat for higher prices. This implies that EU wheat may enter the market in the January through May time period. This may limit export demand for U.S. wheat.
During the last few weeks, export demand for U.S. wheat has been relatively good. World wheat stocks are relatively tight and ending stocks are declining in the U.S. Wheat prices should increase 20 to 30 cents per bushel by January 1.
The expected price increase will depend on the size of Argentina and Australia's wheat crops and the condition of the U.S. winter wheat crop.
A key price indicator is the Kansas City Board of Trade December wheat contract price. If the KCBT December contract price goes below $3, kiss wheat prices good-bye. If the KCBT December contract price goes above $3.30, then we've gained 20 cents and higher prices should result.
Dr. Anderson is an economist at Oklahoma State University in Stillwater. Readers may call 405-744-6082, or e-mail [email protected].