“As long as wheat can be bought and delivered on a timely basis, there is no reason to buy ahead. Today, there are at least five countries that can sell and deliver wheat within a few weeks.”
Wheat market analysts are still predicting higher wheat prices, but most have lowered their price prediction. Kansas City Board of Trade December wheat contract prices were expected to be near $4 by Dec. 1. This price projection has been lowered to about $3.60.
The bad news is that it has rained in western Australia and western Canada and it stopped raining in France. Reports are that Australia's and Canada's droughts are broken and the quality of harvested wheat in France was only marginally reduced by wet conditions. A dry hot condition in the U.S. Corn Belt was also broken.
The good news is that wheat production in Australia, Canada, the European Union (EU-15) and the United States are still expected to be below average and below last year's production level. Of the five major wheat exporters, only Argentina is expected to produce more wheat than last year.
Argentina is expected to produce 661 million bushels, compared to a five-year average of 553 million. Argentina consumes about 170 million bushels domestically and exports the remaining wheat except about 20 million bushels. Argentina sells wheat at whatever price it takes to get it sold for export.
The United States' expected wheat production (1.97 billion bushels) is projected to be 400 million bushels below average. Canada's production (919 million) is projected to be 50 million bushels below average. The EU-15's production (3.53 billion) is projected to be 13 million below average, and Australia's 790 million bushel production is projected to be 24 million below average.
Current market expectations have resulted in wheat prices establishing a sideways price pattern. Dismal export demand is one reason that wheat prices have not established an up price trend.
There are two major reasons for relatively low exports and prices in a period of declining wheat stocks. First is a change in the wheat marketing system. Ten years ago, foreign government purchasing agencies bought about 70 percent of the exported wheat. Today, foreign commercial flour mills buy 70 percent of the exported wheat.
The second reason is that commercial millers operate on a margin. They manage price risk by “cost based averaging.” As they need wheat they buy it. If wheat prices increase, the price of flour increases.
As long as wheat can be bought and delivered on a timely basis, there is no reason to buy ahead. Today, there are at least five countries that can sell and deliver wheat within a few weeks.
U.S. and world wheat stocks are below average. Changes in the marketing system make predicting price movements difficult. However, tight stocks normally result in higher prices.
Market analysts have a relatively good idea how much wheat will be harvested in the Northern Hemisphere. Keys to U.S. wheat prices are U.S. corn production and Southern Hemisphere (mainly Argentine and Australian) wheat production.
The 2001/02 wheat marketing year price trend should be established by early September. The trend is expected to be up. The question is how fast and high prices will go. The answer to the question is the weather in Argentina and Australia.
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