Between Sept. 15 and Oct. 16, Kansas City Board of Trade December wheat contract prices increased from $4.55 to $5.55. The current KCBT December contact price is $5.30. The $1 per bushel price increase was partially due to the reduced Australian wheat production expectations and lower world wheat stocks.

In August, the USDA projected Australian wheat production to be 790 million bushels. The estimate was lowered to 719 million bushels on Sept. 12. In late September, the Australian Wheat Board projected production to be 478 million bushels. On Oct. 12, the USDA lowered the Australian wheat production estimate to 404 million bushels.

Australia's 2005/06 marketing year wheat production was 900 million bushels and the five-year average is 791 million bushels. Between Sept. 12 and Oct. 12, the USDA lowered Australia's projected production 315 million bushels.

From the September to October report, the USDA lowered the world wheat ending stocks 260 million bushels to about 4.3 billion bushels. This was a 5.7 percent reduction in ending stocks.

The U. S. wheat ending stocks estimate was lowered from 429 million bushels to 418 million bushels. Australia's lower wheat production and the projected 260 million bushel reduction in world wheat ending stocks were the major reasons for the September-to-October $1 wheat price rally.

Note that between September and October, U.S. wheat ending stocks were only lowered from 11 million bushels. United States projected 2006/07 marketing-year ending stocks are the lowest since the 1995/96 marketing year and world ending stocks are the lowest since 1981/82 marketing year. The world's stocks to use ratio of 19.5 percent is the lowest on record.

In the October report, the USDA also increased projected U.S. wheat exports from 900 million bushels to 925 million bushels, an 8.3 percent increase. To date, U.S. wheat export shipments are 20 percent less than last year.

The USDA projects hard red winter (HRW) wheat exports to be 300 million bushels, a 30 percent decrease compared to last year. Current HRW wheat export shipments are 52 percent less than last year.

For wheat prices to remain at current levels, U.S. wheat exports must increase. As of Oct. 12, 303 million bushels of wheat have been shipped. To meet the 925 million bushel estimate, weekly shipments must average 18.8 million bushels. Since June 1, export shipments have averaged 16 million bushels per week.

As of Oct. 12, HRW wheat shipments were 77.9 million bushels. To meet the USDA's HRW wheat export estimate, weekly shipments must average 6.7 million bushels.

The other factor impacting wheat prices are winter wheat plantings. Oklahoma wheat planted acres are projected to be about 3 percent higher than last year and Kansas wheat planted acres are projected to be eight to 10 percent higher. Total HRW wheat planted acres are projected to increase from 29.7 million acres in the 2006/07 marketing year to 31.5 million acres in the 2007/08 marketing year.

A problem is that much of the HRW area has insufficient moisture. Poor planting conditions lower the odds of average or better yields next June.

Wheat stocks are tight and the price is volatile and should remain volatile through the foreign wheat harvest next September and October. The U.S. winter wheat crop is the next wheat crop to be harvested and is essential to the world's wheat supply.

The critical 2007 U.S. wheat production level is 2.0 billion bushels. Higher production should result in prices below $4.50 and lower production should result in prices above $4.50. If winter wheat production is below 1.35 billion bushels, the June 2007 HRW wheat price should be above $5.