Up 47 percent since Aug. 16
The good news is that since Aug. 16 wheat prices have increased 47 cents per bushel. The bad news is that the Chicago Board of Trade December corn contract price has fallen 25 cents since Sept 1 and the corn basis is about 8 cents lower.
Relatively low corn prices have the potential to restrict wheat price increases. There are signs that corn prices are at or near the bottom. However, at this writing the CBT December corn contract price (˜$2.18) is below the $2.25 support level and is in a short-run downtrend.
The 47-cent wheat price increase since Aug. 14, is the result of a 29-cent KCBT December contract price increase and an 18-cent increase in the basis. The basis increase indicates relatively good export and domestic demand. Total wheat export shipment and sales are 6 percent higher than last year and wheat that has been sold but not shipped is 7 percent higher than last year Hard red winter wheat sales and shipments are 16 percent less than last year. However, since June 1, HRW wheat sales and shipments have been as low as 28 percent less when compared to last year.
Higher KCBT Dec contract prices indicate that the market expects the demand to continue. For wheat prices to continue the uptrend, the KCBT Dec contract must close above $3.68 for two consecutive days. After two consecutive closes above $3.68, the KCBT Dec contract next target price is about $3.90. Cash wheat prices are about 22 cents less than the KCBT December contract price.
The KCBT Dec contract has price support is at $3.50. Two consecutive closes below $3.50 will indicate that the short-run uptrend has been broken and that the December contract price may fall to $3.30. I do not think that this is very likely.
After harvest price
Shortly after harvest, I predicted that Oklahoma/Texas cash wheat prices would fall to $3 and then would recover to $3.80 by Dec. 1. Cash prices reached the $3 level in mid-August. In mid-August, I backed off the “$3.80 by Dec 1” prediction and lowered the price prediction to $3.40. Cash prices reached $3.44 this week.
“How high can wheat prices go?” The answer depends on foreign wheat production, U.S. corn production and wheat export demand. Before the September USDA Supply and Demand Estimates, each new report showed an increase in foreign wheat production estimates. In the September report, the foreign wheat production (20.3 billion bushels) was only increased 72 million bushels or 0.4 percent.
Marginal increases were reported for the EU-25, and Ukraine. Estimates were reduced for Australia and Kazakhstan. United States production remained the same at 2.12 billion bushels. Since the report, some analysts have reduced production estimates for the U.S. and Canada.
Cold, wet weather in northern U.S. and Canada has delayed the spring wheat harvest and has reduced the quality and quantity of the crop. Some wheat producing areas in Australia are dry, which has resulted in lower Australian wheat production expectations.
Sell in thirds
Price optimism should be tempered with the fact that the USDA predicts that the 2004/05 wheat marketing year average prices will be between $3 and $3.50. Current conditions indicate that the average price will be in the upper half of this price range.
Producers that have wheat in storage may want to consider selling wheat in thirds over the next three months. If prices continue to increase, producers will have wheat to sell and if prices decline, producers will have sold some of their wheat.