This morning, I was longing for the days when I would share my opinion about the market situation and prices, and little change would occur between the time I wrote the article and the time you read it. At that time, cash prices were between $2.50 and $3.50.
Since Jan. 1, cash wheat prices have been between $8.34 and $12.63. New crop forward contract prices have been between $7.79 and $12.09, a $4.30 range in 80 days.
The average change in the Kansas City Board of Trade July wheat contract closing price from one day to the next was 17 cents in January, 33 cents in February and 34 cents in March. The average daily spread between the high and low price was 21 cents in January, 43 cents in February and 58 cents in March.
I decided that if I could choose between $3 wheat with stability and $10 wheat with volatility, I’d rather deal with volatile prices. Volatile prices pay better. Wheat at $8 will generate more profit than $3.50 wheat.
When wheat prices become less volatile, the price range of wheat will probably be between $5 and $7. Wheat at $5 to $7 is expected when wheat stocks are sufficient to meet flour mill and export market demand, and then some wheat is sold as feed. Wheat ending stocks would probably be near 500 million bushels. With relatively high wheat ending stocks, corn prices will be setting the floor for wheat prices.
Corn prices supporting wheat prices could be the result of excess wheat supplies or extremely short corn stocks. Excess wheat supplies are not expected between now and May 31, 2009. However, corn stocks could be depleted with a below average 2008 corn crop.
On March 31, the USDA released the 2007 crop seedings report. USDA’s seeded acres estimate for wheat, corn and soybeans will help remove some price volatility.
At this writing, some market analysts have estimated wheat seeded acres to be 63.5 million. Production is projected to be 2.35 billion bushels. Depending on the 2008-2009 marketing year export demand, 2008-2009 ending stocks are expected to increase from about 240 million bushels to about 500 million bushels.
World wheat planted acres are estimated to be 6 percent to 8 percent higher than last year and world wheat production is projected to be 23.5 billion bushels. The record world wheat production was 23.1 billion bushels in the 2004-2005 marketing year.
A 23.5 billion bushel world wheat crop could result in world wheat ending stocks increasing from 4.05 billion to 4.7 billion bushels.
United States wheat ending stocks at 500 million bushels and world ending stocks at 4.7 billion bushels imply wheat prices in the $5 to $7 range.
As the wheat stocks situation improves, stocks will increase unevenly for each wheat class. Current crop conditions indicate that hard red winter wheat production will be about 900 million bushels. Hard red winter wheat ending stocks in 2008-2009 are expected to increase but will remain relatively tight.
Some analysts predict that soft red winter wheat production may set a record. Planted acres are 21 percent higher than last year, and the SRW crop condition is above average. Soft red winter wheat 2008-2009 ending stocks may be sufficient for some SRW wheat to be sold as feed.
If U.S. and foreign wheat production is as anticipated, expect Oklahoma, Texas and Kansas wheat prices to be in the $8 to $9 range in June. Prices would be expected to remain in the $8 to $9 range in July and early August.
World wheat production of 23.5 million bushels will require average or better Argentine and Australian wheat production. This would result in HRW wheat prices declining into the $7 to $8 range by Dec. 1.