In May, Leo Holloway of Buffalo Gap (Abilene), Texas asked for $6 wheat prices. Wheat prices are now above $6 in Texas. Now Mr. Holloway probably wants to know if wheat prices will reach $7.
Because weather continues to have a negative impact on the world's 2007-2008 wheat production, wheat prices are above $6 and heading towards $7. With extremely tight U.S. and world wheat stocks, the market will ration wheat via higher prices. How high prices go will depend on Southern Hemisphere wheat production.
The Northern Hemisphere wheat harvest is ending and yields are not as high as expected. Australia and Argentina's 2007 wheat production will be the next major crops that impact prices.
Australia is projected to produce 845 million bushels compared to last year's 367 million bushels and a five-year average of 692 million bushels. Australia's record wheat production was 932 million bushels in the 2005-2006 marketing year.
Argentina is projected to produce 514 million bushels compared to 559 million bushels last year and a five-year average of 534 million bushels. If anything happens to reduce either of these crops, wheat prices will probably surpass $7.
World wheat ending stocks, for the 2007-2008 marketing year, are projected to be 4.2 billion bushels. This is the lowest since the 1981-1982 marketing year. More importantly, the world's stocks-to-use ratio (use divided by ending stocks) is projected to be 18.5 percent, the lowest on record.
World 2007-2008 wheat consumption is projected to be 22.8 billion bushels. World wheat production has only been above 22.8 billion bushels twice. World production was 23.1 billion bushels during the 2004-2005 marketing year and 22.9 billion bushels during the 2005-2006 marketing year. The odds that world wheat stocks will increase during the 2008-2009 marketing year are relatively low.
United States wheat exports continue to be relatively strong. All wheat sold for export is 80 percent higher than this time last year. Hard red winter wheat export sales are 195 percent higher than last year. These higher sales are an indication of lower foreign wheat production and lower competition for export wheat sales.
There are also indications that U.S. corn production may not reach the projected 13.05 billion bushels. The odds are relatively high that corn stocks will increase during the 2007-2008 marketing year. However, as more ethanol plants come online, the increased stocks will be needed.
United States winter wheat producers have started planting the 2008 wheat crop. Tillage is below average, and some producers are having difficulty finding seed.
Some elevators are offering 53 cents under (-$0.53) the KCBT July 2008 wheat contract for June-delivered wheat. At this writing, the KBT July 2008 wheat contract price is $5.92. Thus, wheat may be forward contracted for $5.49 for a June 2008 delivery.
During June 2008, the Central Oklahoma basis averaged about a minus 43 cents. With tight stocks, the June 2008 basis is expected to be at least a minus 43 cents and possibly higher. This expectation would indicate a June 2008 cash price of $5.59.
If weather had been favorable for harvesting the 2007 U.S. and world's wheat crop, wheat prices would probably now be in the low $4 range rather than the $6 range. In early April 2007, the projected corn price in Oklahoma and the Texas Panhandle was about $4.26, and wheat could be contracted for about $4.10. Corn was supporting wheat. The odds are that through June 2008 wheat prices will stay well above corn prices.
The odds of $7 cash wheat are about 25 percent. However, prices will remain volatile, and the best way to sell wheat may be to sell a little bit at a time. And, Mr. Holloway, think about keeping 100 bushels to sell at $7 if it happens.