United States wheat stocks are the tightest since 1995 and world wheat stocks are the tightest since 1981. The world’s wheat stocks to use ratio (ending stocks divided by annual use) is 19.5 percent, the tightest on record.
This implies that on May 31, 2007, there will be enough wheat in storage to meet world wheat demand for 71 days. The average is a 97 day supply.
United States corn stocks are the lowest since 1996 and world corn stocks are the lowest since 1990. The world’s corn stocks to use ratio is 12.6 percent, the lowest since 1972. This implies that as of July 31, there will be enough corn in storage to meet 46 days use. The average is 71 days supply.
Normally, producers can rebuild wheat stocks with one year’s production and corn in two year’s production. The current situation is different. During the 2006/07 corn marketing-year, 1.1 billion bushels more corn were used than were produced.
Also, during the 2007/08 marketing-year, corn demand for ethanol is expected to increase by 1.1 billion bushels.
Without reduced corn used for feed and exports, 2007 U.S. corn must be 2.2 billion bushels higher than the 10.5 billion bushels 2006 corn crop.
World use of corn as feed is expected to decline. Wheat and other grains will be substituted for corn.
Wheat not used by the food market will be used by the feed market and wheat stocks are expected to remain below 500 million bushels. This should prevent wheat stocks from being rebuilt during the 2007/08 marketing-year.
In developing the 2007/08 wheat marketing-year marketing plan, producers need to consider the fact that the feed market will provide a floor for wheat prices. Producers should also consider the timing of the corn harvest and the foreign wheat harvests.
Corn supplies cannot be increased until corn is harvested in September and October. Thus, corn prices should remain near current levels until new crop corn enters the feed market.
Corn’s impact on wheat prices is that wheat prices should remain relatively high through most of July. A corn crop above 12.3 billion bushels and a world wheat crop above 22 billion bushels could result in wheat prices trending downward after July. In this case, the wheat marketing strategy would be to sell wheat at harvest.
Current world wheat conditions support 2007/08 marketing-year production estimates of about 22.5 billion bushels. The five-year average is 21.6 billion bushels. The record wheat crop is 23.1 billion bushels produced in 2003/04.
Kansas City Board of Trade wheat contract prices imply that the market expects wheat demand to remain strong through July 2009. The KCBT July 2007 contract price is $4.83 and the July 2009 contract price is $4.85.
The Chicago Board of Trade July 2007 corn contract price is $3.89 and the July 2010 corn contract price is $4.05. This implies the feed market may provide a price floor for wheat at about $4 cash price in Oklahoma and Texas through 2010.
When developing the 2007 marketing plan, note that the KCBT December contract is at a 24 cent premium to the July contract price.
For wheat stored in commercial storage, the cost to own wheat is about five cents per month. Thus, commercial storage plus interest costs from July 1 to Nov. 30 is about 25 cents.
For producers whose storage cost is less than three cents per bushel per month and/or they have low interest opportunities, there may be profit in storing wheat until the September through November time period.
Producers who pay three cents per month storage and need income for production loans or to plant the 2008 crop should consider selling the wheat at harvest.
There is about 40 cents downside price risk and about a $1 upside price potential for wheat prices. This may be the year to sell one-half of the wheat at harvest and sell the remaining one-half between late September and Dec. 1.