Marketing year price trend is sideways and down

The wheat marketing-year prices trend is normally set in late August and early September. On Sept. 4, the Kansas City Board of Trade (KCBT) December wheat contract price begin a sideways price pattern between $4.60 and $4.90. The December contract price has remained in this sideways pattern for four weeks.

Sideways patterns often indicate that prices have bottomed out. This has not been the case this marketing year. Since late June, three sideways patterns have been established. Two patterns have been breached. By the time you read this, maybe all three will have been breached.

On June 1, the KCBT December wheat contract peaked at $7.53. On July 1, the December wheat contract started a sideways pattern between $5.60 and $6. United States and European Union winter wheat yields and production were higher than expected and the December wheat price broke out the bottom. The sideways pattern had lasted about six weeks.

Between Aug. 5 and Aug. 14, December wheat contract prices fell 80 cents. Another sideways pattern was established between $5 and $5.40. On Sept. 3, higher-than-expected wheat production resulted in prices breaking out the bottom. This sideways pattern had lasted about three weeks.

At this writing, the KCBT December wheat contract price is in a $4.60 to $4.90 sideways pattern, and the price will either breakout the top or the bottom. Two closes above $4.90 (really a close above $5) are needed to breakout the top and establish an uptrend. Two closes are required below $4.60 to establish a downtrend. Prices will probably breakout the top or the bottom within the next few weeks.

At this writing, the December wheat contract price is $4.60, the support price. If wheat prices break out the bottom, the next price target would be $4.20. That is 40 cents below $4.60 (the price at this writing).

A breakout of the top ($4.90) would imply a price target of $5.40. This would require an 80 cent increase in the KCBT December wheat contract price ($4.60 to $5.40).

Will the price breakout the top or the bottom? The biggest price factor is wheat stocks. Other price factors are exports, Argentina and Australia’s wheat production, and U.S. winter wheat plantings.

The USDA released the wheat stocks estimate and the wheat use estimate for the first quarter of the marketing year. Wheat use for the first quarter was estimated to be 702 million bushels compared to 975 million bushels last year. 2009-2010 marketing-year exports sales are 231 million bushels less than last year and export shipments are 160 million bushels less. Lower exports make up the major portion of the 273 million bushel reduction in wheat use.

Recent reports indicate that timely rains have improved wheat crop conditions in Argentina and Australia. These crops are the last two that produce exportable wheat to be harvested during the 2009-2010 marketing-year.

About all the negative news to depress wheat prices is in. Argentina and Australia’s wheat production probably will not be higher than currently expected. Relatively high, world wheat stocks are already factored in the market. A potential record U.S. corn crop is expected.

About the only thing left that could negatively impact wheat prices is 2010 U.S. winter wheat crop planted acres. Some analysts predict a reduction in U.S. winter wheat planted acres.

The current market situation just doesn’t provide any stimulus for wheat prices to breakout the top. What is needed is a substantial increase in export sales. The rub is that wheat-exporting countries have excess wheat and are willing to sell at lower prices than U.S. suppliers.

It costs about 6 cents per bushel per month to own wheat (4 cents storage and 2 cents interest). Producers who have wheat in storage should consider selling wheat, in 20 percent increments, between now and Dec. 1.

TAGS: Outlook
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