Kansas City December wheat contract prices tried to reach and stay above the $6 support level. During the 16 trading-day period between October 16 and November 6, KC December wheat contract prices were above $6 for eight days and below $6 for eight days.
At this writing, the problem is that the December contract price has been below $6 for the last five days and is now near $5.80. The good news is that the downtrend that began in mid-June has been broken. The bad news is that the KC wheat contract price has not been above $6.20 to establish an uptrend, and the price is now near $5.80. Oklahoma and Texas Panhandle cash wheat prices are currently mostly 30 cents to 40 cents less than the KC December contract price.
The cause of low prices may be threefold: relatively high corn stocks, a shortage of U.S. grain transportation, and a 10.5 percent increase in the value of the U.S. dollar relative to other major currencies.
U.S. wheat production for 2014 was 130 million bushels (6 percent) and U.S. wheat ending stocks are projected to be 124 million bushels (16 percent) below average. Hard red winter wheat production was 155 million bushels (17 percent) and ending stocks were 141 million bushels (42 percent) below average.
At this writing, the Medford, Oklahoma, wheat price is $5.55, and the Perryton, Texas, price is 5.45. The five-year average U.S. wheat price is $6.26, and the average Oklahoma/Texas Panhandle price is $6.39 (June 2009 through May 2014). Below average production and stocks normally do not result in below average prices.
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World wheat production is projected to be a record 26.5 billion bushels, and ending stocks are projected to be less than 1 percent above average. The world wheat stocks-to-use ratio (ending stocks divided by use) is projected to be 4 percent below average. Near average stocks should imply average prices.
During the 2011/12 corn marketing year, corn ending stocks were 33 percent below average and during the 2012/13 marketing year, corn ending stocks were 45 percent below average. Feed demand for wheat during these two years added about 85 cents per bushel to the price of wheat for two years.
This situation implies that tight corn stocks increased the five-year average wheat price by about 35 cents. We have no reason to believe corn prices will help increase wheat prices.
Grain handlers have reported the increased demand for rail cars, barges, and grain trucks have increased transportation costs. Higher transportation costs for the interior to the Gulf results in lower interior grain prices. We have no reason to believe that the transportation situation will improve.
Since July 1, the index of the value of the U.S. dollar against other currencies has increased from 79.9 to 88.4 (10.5 percent). The Texas gulf wheat price is reported to be $6.60. A 10.5 percent increase in the value of the dollar effectively adds 70 cents to the price of U.S. wheat on the world market. We have no reason to believe that the value of the U.S. dollar will decline very much against the other major currencies.
Adjusting the five-year average Oklahoma and Texas wheat prices for the impacts from tight corn stocks (35 cents) and the higher dollar value (70 cents), the new average would be $5.44.
Since June 1, the Medford, Oklahoma, price has averaged $6.10, and the Perryton, Texas, price has averaged $6. The current Medford price is $5.55, and the Perryton price is $5.45, both very close to the adjusted five-year average price without adjusting for the increase in transportation costs.
The above analysis implies that current wheat prices may be in line with the adjusted five-year average price. If this analysis is correct and unless the wheat market situation changes, there is no reason for wheat prices to start an uptrend.