At the February USDA Outlook Forum, the USDA projected the 2015/16 wheat marketing year (June 2015 through May 2016) average price to be $5.10. This price is 90 cents less than the projected 2014/15 wheat marketing year average price of $6.00. Oklahoma and the Texas Panhandle average annual prices are expected to be about 10 cents less than the average U.S. price.
At this writing, USDA’s $5.10 projected price is about the same as current Oklahoma and Texas Panhandle cash prices and forward contract prices being offered for harvest delivered wheat.
In Oklahoma and the Texas Panhandle wheat may be forward contracted for harvest delivery between minus 15 cents (north central Oklahoma) and a minus 50 cents (southern Oklahoma) basis the KC July wheat contract. The average Texas Panhandle basis is about a minus 35 cents. At this writing, the KC July wheat contract price is $5.45. Using a minus 35 cent basis produces a harvest forward contract price of $5.10.
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The five- and ten- year average monthly price charts show the lowest monthly average price has been in June. The average monthly price has increased from June to peak prices from August through December. For wheat prices to average $5.10 between June 1, 2015 and May 31, 2016, wheat prices could be expected to decline to $4.75 or lower by June or July.
USDA’s projected 2015/16 marketing year price is consistent with Allendale, Incorporated’s projected average annual price which ranged between $4.85 and $5.82. With projected ending stocks of 721 million bushels, Allendale’s expected price was $5.34.
USDA’s higher ending stocks projection is probably the difference between Allendale’s $5.34 and USDA’s $5.10.
USDA projections (2015-2016) include wheat planted acres of 55.5 million, compared to 56.8 million acres last year and a seven year average of 57.3 million acres. U.S. wheat production is projected to be 2.125 billion bushels compared to a seven year average of 2.19 billion bushels.
The seven-year average U.S. annual price is $6.46. Wheat ending stocks for 2015/16 are projected to be near average (USDA’s 763 million bushels versus 748 million bushels). With projected near average ending stocks, the expected price should be near average. A projected average annual price of $5.10 is $1.36 below the seven year average price.
Possibly the best predictor of price is the “stocks-to-use” ratio (ending stocks divided by annual use). USDA projects the 2015/16 wheat stocks-to-use ratio to be 34.6 percent compared to 33.2 percent in 2014/15 and a seven-year average of 33.5 percent. USDA’s above average stocks-to-use ratio supports a projected below average price.
For the 2010/11 marketing year, the stocks-to-use ratio was 36.7 percent (2.2 percent higher than projected for 2015/16), and the average annual price was $5.70 (compared to $5.10 for 2015/16). Given USDA’s projected 34.6 percent, this relationship is not as expected.
A major difference between 2010/11 and 2015/16 is the value of the dollar compared to other major currencies. The projected higher value of the U.S. dollar explains about $1 of the $1.36 ($6.46 average - $5.10 projected) below average price. The remaining 36 cents may be explained by above average world wheat stocks and relatively high corn stocks.
A lot may happen between now and harvest. The dollar value may decline. U.S. winter wheat production may be less than expected. Problems may occur with world wheat production. The 2015 U.S. corn crop could be a disaster.
What is known is that, during the 2015/16 wheat marketing year, U.S. wheat prices could go as low as $4.50 or as high as $7.50. The most likely average price is around the $5.10 level.