Wheat prices may have established a bottom and that is good news. The problem is that there is about a 30 percent chance that wheat prices will fall 40 cents or more.
Both the Kansas City March and July wheat contract charts indicate that hard red winter (HRW) wheat prices have not only bottomed out, but prices have increased about 30 cents from the bottom. The KC March contract established support at $6.17, and the July contract established support at $6.13.
Recent wheat market news has been negative on price. India announced that more government wheat stocks will be exported. In March, India is also expected to start harvesting another record wheat crop which will add to India’s massive wheat stocks.
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Australia’s wheat harvest was larger than expected. And Argentina is getting its act together and is expected to start exporting wheat soon.
With relatively low corn prices (Illinois/Iowa/Nebraska prices are near $4.25.), there is essentially no feed demand for wheat. Between February and August 2013, relatively high corn prices may have added 75 cents to 85 cents per bushel to wheat prices. That will not happen in 2014.
The only good news is that corn prices also may have bottomed out. The CBT March contract price appears to have established support at about $4.17 and at $4.07. At this writing, the CBT March corn contract price is $4.28.
Bad news price-wise and good news production-wise is that most of the 2014 HRW crop is in relatively good condition. Wheat producers are expected to harvest an above average 2014 wheat crop.
U.S. HRW wheat is priced above most countries export wheat price. The only way very much U.S. HRW wheat will be sold for export is if the value of the dollar relative to other currencies declines, world wheat prices increase, or HRW wheat prices decline. None of these events are expected anytime soon.
This scenario should not surprise anyone. U.S. HRW wheat stocks are tight and are expected to remain tight until midway through harvest. HRW wheat ending stocks are projected to be 197 million bushels compared to 343 million last year and a five-year average of 337 million bushels.
The market will protect the tight stocks by keeping HRW wheat prices above world prices.
At this writing, wheat may be forward contracted for harvest delivery in some Oklahoma and Texas Panhandle elevators for 40 cents less than (40 cents under) the KC wheat July contract price. At this writing, the KC July wheat contract price is $6.25. The forward contact price would be $5.85.
Until the U.S. winter wheat crop comes out of dormancy in late February and early March, little market news is expected that could cause dramatic changes in wheat prices. Some unexpected export sales might occur, but the odds are low.
The bottom line is that if you have wheat in storage and want to sell it, there is not much news in the market to move prices very far up or very far down. Consider selling the wheat in equal increments between now and May.
If you cannot afford to sell wheat for 50 cents below current prices, consider selling all of the wheat now. If there is any good wheat price news, it is probably that there is very little news that is not already considered by the market that will be negative for wheat prices.