Since June 1973, wheat prices were above $5 during January and February 1974 and January through June 1996. Thus, wheat prices have been above $5 for eight out of 384 months, or about 2 percent of the time.
Since June 1973, 25 percent of the time U.S. wheat prices have been above $3.61 and 25 percent of the time U.S. wheat prices have been below $2.77.
The average U.S. wheat price for the period June 1973 through October 2005 is $3.29. Thus, 50 percent of the time wheat prices have been above $3.29 and 50 percent of the time wheat prices have been below $3.29.
The above prices are based on U.S. monthly average prices from June 1973 through October 2005. The prices were not adjusted for storage and interest. Thus, the net price (actual price minus storage and interest) would be lower than the prices quoted above.
During the period June 1973 through June 2005, the average June price was $3.05. Twenty-five percent of the time the average June price was below $2.62 and 25 percent of the time the average June price was above $3.47. Based on past prices, the odds of $5 wheat are slim to none (2 percent).
When wheat prices surpassed $5 in 1974, 1973-1974 U.S. marketing-year ending stocks were 340 million bushels compared to a five-year average of 772 million bushels. 1973-1974 world wheat-ending stocks were 3.04 billion bushels compared to a five-year average of 3.38 billion bushels.
When wheat prices surpassed $5 in 1996, 1995-1996 wheat marketing-year U.S. ending stocks were 376 million bushels compared to a five-year average of 554 million bushels. World wheat ending stocks were 5.6 billion bushels compared to a five-year average of 6.14 billion bushels.
Another price indicator is the stocks-to-use ratio (ending stocks divided by use). For the 1973-1974 marketing year, the U.S. stocks-to-use ratio was 17.3 percent, and for 1995-1996 the stocks-to-use ratio was 15.8 percent. Note that wheat prices were considerably higher in 1996 and stayed higher longer than in 1974. The world’s stocks-to-use ratio was 23 percent in 1973-1974 and 30 percent in 1995-1996.
For the 2005-1906 wheat marketing year, U.S. wheat ending stocks are projected to be 530 million bushels and the stocks to use ratio is projected to be 24.2 percent.
During the last five years, U.S. wheat use (domestic and exports) has averaged 2.18 billion bushels. The range has been between 2.35 and 1.97 billion bushels and 2005-2006 marketing year use is projected to be 2.19 billion bushels. For the stocks-to-use ratio to be 17 percent, U.S. wheat ending stocks must be about 370 million bushels.
This implies that 2006-2007 wheat marketing-year ending stocks must decline about 160 million bushels (530 million bushels minus 370 million bushels). Lower stocks will require lower production.
United States wheat production in 2005 was 2.1 billion bushels and the five-year average is 2.06 billion bushels. For ending stocks to decline from 530 million bushels to 370 million bushels, U.S. wheat production must be about 19.5 billion bushels.
The 2006 U.S. winter wheat crop has been planted and is in relatively good condition. Winter wheat planted acres are expected to be greater than last year. At this point in time, there is little reason to expect 2006 wheat production to be below average.
Currently, the Kansas City Board of Trade July ’06 wheat contract price is $3.54. Using a minus 40-cent basis, the market is predicting a June 2006 price of $3.14. This is slightly above the $3.05 U.S. average June price and is in line with the current wheat stocks estimates.