Transition from 2007 to 2008 wheat production

The Kansas, Oklahoma and Texas 2007 wheat harvests are essentially complete. For producers in southern and western Oklahoma, the Oklahoma and Texas panhandles and western Kansas, this was a good harvest with relatively high prices.

For producers from south-central Oklahoma into central Kansas, the harvest was mostly a disaster. Wheat yields varied from zero to well below average and much of it was of relatively low quality. Some producers that did not have crop insurance are still trying to harvest.

Nearly all producers in the hard red winter (HRW) wheat area will feel the effects of the disaster when they buy wheat seed. The seed will cost more than last year and many producers will have to search long and hard to find seed. Some producers may have to plant wheat seed with lower than normal germination rates.

The advice of one seed dealer is to locate seed as soon as possible and get it bought. Some seed dealers are putting producers on lists on a “first come, first serve” basis or “subject to availability and price.”

If producers contract seed, they need to make sure that they have guaranteed delivery or the option to accept seed from the first dealer that can provide seed at a reasonable price. High quality seed is essential to high yields and good quality.

At this writing, cash wheat prices in Oklahoma range from $5.47 to $5.80. Texas Panhandle prices range from $5.31 to $5.56. Prices have been down 26 cents and back up 20 cents in the last four days.

The KCBT September wheat contract price is $6.07 and the December wheat contract price is $6.22. The market is willing to pay about 15 cents per bushel more for wheat in November than in August ($6.22 - $6.07). Storage and interest costs are about 5.5 cents per bushel per month or about 16.5 cents from August to November. There is about a 50/50 chance that storing wheat until November will produce a profit above storage and interest costs.

At this writing, the KCBT July '08 wheat contract price is $5.61. The central Oklahoma average June 2007 cash price minus the average July futures contract price was a minus 47 cents. Using a minus 47 cents for the June/July 2008 basis, the projected cash price would be $5.14 ($5.61 - $0.47).

The actual average June 2008 cash price will depend on 2007/08 marketing year world wheat ending stocks and U.S. 2008 winter wheat production. The July, 2007, USDA wheat supply and demand estimates projected U.S. 2007/08 wheat ending stocks to be 418 million bushels and world 2007/08 wheat ending stocks to be 4.3 billion bushels. These are the lowest U.S. ending stocks since 1973/74 and the lowest world ending stocks since 1981/82.

A review of the mid-May, 2007, wheat price and supply and demand situation may be used to project how low wheat prices could be in June 2008.

In March 2007, U.S. wheat ending stocks were projected to be 472 million bushels and world wheat ending stocks were projected to be 4.5 billion bushels. United States winter wheat production was projected to 1.6 billion bushels compared to a 5-year average of 1.4 billion bushels.

In March, 2007, wheat could have been forward contracted for harvest delivery for about $4.35 per bushel (KCBT July contract price minus 40 cents). The odds of 2007/08 U.S. and world wheat ending stocks being above last years' levels are relatively low and U.S. winter wheat production will probably be less than 1.6 billion bushels.

Above-average 2008 U.S. winter production could result in June 2008 wheat prices being as low as $4.35. A below-average 2008 winter wheat crop could result in June 2008 wheat prices being $6.20 or higher.

With an expected floor price of $4.35 for June 2008 wheat, the market is expected to reimburse producers for buying relatively high priced seed.

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