The world was “awash” in wheat. U.S. hard red winter wheat prices were higher than other export countries’ prices. U.S. 2015 hard red winter wheat production was predicted to be 20 percent higher than last year. U.S. wheat stocks were projected to increase 14 percent. The index of the U.S. dollar against other major currencies had increased from 94 to 95. There were few reasons for prices to increase.
From June 18 through June 30, however, Oklahoma and Texas Panhandle wheat prices increased 97 cents. Many analysts attributed the price increase to funds covering (buying) short (sold) futures contract positions. During the last two months, the funds have gone from about 111,000 futures contracts short (555 million bushels sold) to nearly zero short positions (bought 555 million bushels). One report indicated that the last 20,000 short positions were closed (100 million bushels bought) on June 30.
On June 30, the USDA released the plantings and the stocks estimates. All U.S. wheat stocks as of June 1 were estimated to be 753 million bushels compared to 590 million bushels on June 1, 2014. The average of The Dow Jones survey of market analysts’ pre-release estimate was 713 million bushels. The stocks report was bearish for wheat prices.
The USDA estimated all wheat planted acres to be 56.08 million compared to analysts’ pre-release estimates of 55.65 million. This appeared to be bearish for wheat prices.
On the bullish (positive) side, USDA’s winter wheat estimated plantings were 40.62 million acres compared to market analysts’ projections of 41.8 million acres. The 40.62 million acre estimate is 4 percent below 2014’s 42.4 million planted acres.
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The positive price impact of lower planted winter wheat acres was offset by the 2015 harvested acres estimate. Because of poor growing conditions in 2014, some 32.3 million acres (76 percent of planted acres) were harvested. The USDA estimated that 33.3 million acres (82 percent of planted acres) will be harvested in 2015.
Additional negative price news contained in USDA’s report was a 4 percent increase in U.S. spring wheat planted acres. Canadian wheat planted acres was also projected to increase 1.3 percent.
On Thursday, June 18, the KC September wheat contract price bottomed out at $5.06 and closed the day at $5.13. On Tuesday, June 30, the KC September wheat contract peaked at $6.11 and closed the day at $6.10. Two consecutive closes above $6 would break the sideways price pattern between $5 and $6 that had been established May 5, 2015, and start an uptrend.
On July 1, the KC September wheat contract price was down as much as 22 cents. This 22-cent price decline emphasizes the volatility of the grain markets.
The world is “awash” in wheat. The question is, “Is the world awash in milling quality wheat?” As the 97-cent, seven-day price move indicated, the market is concerned that milling quality wheat is limited.
The moral of the story to date is, “Don’t let fear or greed get in the way of taking advantage of higher prices.” If you’re surprised by a higher price, it is probably wise to capture some of it.