United States wheat production is higher than expected. Foreign and world wheat production and U.S. corn production are expected to set record highs. Conditions for planting 2005 winter wheat are near perfect. Wheat producers are storing more wheat than normal.
Nearly all the market news is negative and that is good news. There is not much left that can cause wheat prices to go lower. It's time for prices to turn around.
Central Oklahoma and Texas Panhandle cash wheat prices are about $2.90 and there are signs that wheat prices have bottomed out. If the KCBT December wheat contract stays above $3.30, then cash wheat prices should trade sideways or start an uptrend. This implies that cash prices will be between $2.90 and $3.10.
For a price uptrend to be established, the KCBT December wheat contract must close two consecutive days above $3.50. Closes above $3.50 would imply cash prices between $3.10 and $3.30. In a normal marketing year, the cash price trend is set in late August and early September.
For the first time since the 1998/99 wheat-marketing year (June 1 through May 31), world wheat ending stocks are projected to increase. World wheat ending stocks are projected to be 5.2 billion bushels compared to 4.7 billion bushels last year and a 5-year average of 6.7 billion bushels.
United States wheat ending stocks are projected to increase from 534 million bushels to 578 million bushels compared to a 5-year average of 730 million bushels. This is only a one percent increase.
The 5-year average U.S. price of wheat is $2.97, which corresponds to world average ending stocks of 6.7 billion bushels and U.S. ending stocks of 730 million bushels.
With U.S. wheat-ending stocks projected to be 152 million bushels or 21 percent below average, wheat prices should be near last year's average price of $3.40.
Last year, cash prices were volatile and ranged between $2.65 in June 2003 and $3.90 in January 2004. Prices increased to $3.65 by mid-August 2003, fell to $3.20 by mid-September and then rose to $3.90 in January.
Since June 1, cash wheat prices have fallen from $3.65 in early June to $2.90 in mid-August. When the record foreign wheat crop clears harvest, wheat prices should increase.
The USDA projects that the 2004/05 wheat marketing year average price will be $3.25 per bushel. The national average U.S. June 2004 wheat price was $3.58 and the July estimate is expected to be $3.30. August average prices will be lower. For 2004/05 marketing year prices to average $3.25, wheat prices must go back above $3.25.
For wheat prices to increase, corn prices must lead the way. The USDA projects that 2004 U.S. corn production will be 10.9 billion bushels. Some trade analysts predict that U.S. corn production will be 11 billion bushels. The 5-year average production is 9.6 billion bushels.
The good news is that world corn consumption is projected to be about 300 million bushels higher than world corn production.
Elevators report that producers have sold a lower percentage of wheat production than normal. That implies that a higher percentage of the wheat crop will be sold in the fall and winter than normal. Thus, prices reaching $3.80, as earlier projected, is not very likely.
The odds favor cash wheat prices reaching $3.40 by Dec. 1. This is more than the four cents per bushel per month storage and interest costs associated with owning wheat in a commercial warehouse.
Producers who have a marketing plan should continue to follow the plan. Producers who do not have a plan should consider selling one-third of their wheat in mid-September, one-third Nov. 1 and the final one-third in mid-December.