United States’ wheat export demand and the world’s supply of wheat may be the current major determinants of wheat prices. What the market may not be considering is that, between now and next June, the single most important price factor may be the drought in Kansas, Oklahoma, and Texas.

The long-term Drought Indicator projects the drought to persist in Oklahoma, Texas and in the southern half of central and western Kansas through October. Drought conditions could reduce hard red winter (HRW) wheat planted acres and have a negative impact on 2012 HRW wheat yields. Relatively low 2012 HRW wheat production could ensure relatively tight HRW wheat stocks until June 2013.

Normally, the market does not focus on the next year’s potential wheat production until January or February. If the drought persists as predicted, wheat prices will probably be positively affected in the November/December time period. Lower hard red winter (HRW) wheat stocks (386 million bushels in 2010/11 compared to a projected 199 million bushels in 2011/12) set the stage for higher HRW wheat prices.

While there has been positive wheat price news in the U.S., there has been negative price news in the world situation. The world’s wheat production estimate was increased, which resulted in an increase in projected world wheat ending stocks. The price problem is that the production increases were mostly in former Soviet Union countries (Russia, Kazakhstan, and Ukraine).

Each of these countries is attempting to establish a presence in the export market. Some analysts have reported that Russia is determined to become a “major exporter.” Reports indicate that Russian wheat export sales have been $0.75 to $1.25 below world wheat export prices.

The wheat marketing-year price trend is normally set in late August and early September. Using the KCBT December wheat contract price pattern, the current HRW wheat price trend is sideways—between $7.70 and $8.50.

If the KCBT Dec wheat contract price closes two consecutive days above $8.50, a weak uptrend will be established. The price target would be about $9. Closes above $9 would establish a relatively strong uptrend.

Closes below $7.70 would establish a weak downtrend. In this case, the price target would be $7.20.

In the Great Plains, the single most important price and economic factor is the drought. The current weather situation makes crop insurance a very important part of the farm plan.