Wheat top dressing season is over. The graze-out decision has been made and, if needed, the stockers moved off the wheat. Wheat producers must decide between participation in the ACRE (Average Crop Revenue Election) program or the DCP (Direct and Counter-cyclical) program. Producers also need to develop a marketing strategy for the 2009 wheat crop.
The expected 2009 wheat harvest price in central Oklahoma and the Texas Panhandle is $5. At this writing, the KCBT July wheat contract price is $5.69. The central Oklahoma and Texas Panhandle basis is expected to be a minus 70, which indicates that the market is projecting the harvest price to be $4.99.
The forward contract basis for harvest delivered wheat is between a minus 70 cents and a minus 1.20. Elevators have a tendency to take “risk protection” by setting the forward contact basis lower than the expected harvest basis. Thus, the harvest basis may be 10 to 15 cents higher than the forward contract offer.
Information required to compare the ACRE program to the DCP program includes the national average price for the 2007/08 and 2008/09 wheat marketing year, the 2009/10 national average price and the five-year national average wheat prices. The World Agricultural Supply and Demand Estimates (WASDE) provide the 2007/08 national average price and an estimate of the 2008/09 price.
The WASDE wheat report shows that the 2007/08 national average price was $6.48. The 2008/09 national average price is projected to be between $6.70 and $6.90. My best estimate is $6.75.
The national average price for 2009/10 depends on 2009/10 wheat beginning stocks, 2009 wheat production and 2009/10 wheat use and exports. Beginning stocks are projected to be 650 million bushels. With average wheat yields, ending stocks are also expected to be 650 million bushels
The USDA estimated that U.S. winter wheat planted acres to be 42.1 million. Using average yields (43.8 bu/ac), average percent of planted acres harvested (81.1 percent), U.S. winter wheat production is projected to be 1.5 billion bushels.
Spring wheat production is expected to be 600 million bushels. With one million bushels of wheat imported, the total 2009/10 marketing year wheat supply would be 2.85 billion bushels.
The five-year average wheat use is 2.2 billion bushels. This includes 1.2 billion bushels used domestically and one billion bushels exported.
With average yields and 2.1 production and 2.2 billion bushel use, wheat ending stocks on May 31, 2010, are expected to be 650 million bushels.
World wheat beginning stocks are projected to be over 1.2 billion bushels higher than last year. The world's five-year average wheat production is 23 billion bushels compared to 25.1 billion bushels produced during the 2008/09 marketing year.
The world's five-year average wheat use is 23 billion bushels. 2009/10 wheat marketing year production of 23 billion bushels would result in no change in world wheat ending stocks.
No change in either U.S. or world wheat ending stocks would result in Oklahoma and Texas wheat prices in the $4.25 to $5.50 range.
One thing known for certain is that the odds of average yields and production are slim to none. Production will be either above or below current expectations. Above average yields could cause wheat prices to fall to $4.
Below-average yields could cause wheat prices to increase to $6. It would take a world wheat crop failure, like in 2007/08, for wheat prices to go above $6.
One last estimate that is needed for the ACRE decision is the five-year average wheat prices. Market analysts have estimated the five-year average price to be between $4.75 and $5.75. I lean to an average price that is around $5.