My best guess is that the June 20, 2009 wheat price in central Oklahoma and the Texas Panhandle will be $6.75. The price could be as low as $5 or as high as $11. Given the current price volatility, making a marketing plan based on price predictions is difficult at best.

The cost to plant wheat is about $154 per acre and custom harvesting may cost an additional $36. At 35 bushels per acre, the breakeven price to cover variable costs (land and equipment costs not included) is $5.43. If cash rent is $40, the breakeven price jumps to $6.57.

At this writing, the Kansas City Board of Trade July 2009 wheat contract price is $7.65. The July contract price was $10.11, three weeks ago. A $2.46 price change in less than 20 days makes predicting prices 190 days out essentially impossible.

Oklahoma grain elevators are offering a 2009 wheat harvest forward contract basis between a minus 95 cents and a minus $1.30 basis the July 2009 KCBT wheat contract price. Texas panhandle elevators are offering a June 2009 basis July 2009 of a minus 85 cents.

Oklahoma wheat may be forward contracted between $6.70 and $6.30. Texas panhandle wheat may be forward contracted for about $6.80.

On June 20, 2008, the Oklahoma wheat basis ranged from about a minus 65 cents to a minus 90 cents. The Texas panhandle basis was about a minus 75 cents.

The odds are that the June 2009 wheat basis will be lower than the June 2008 basis and higher than the forward contract basis being offered.

Grain elevators take a significant amount of risk when they forward contract wheat. As experienced last spring, it is possible for the KCBT July 2009 wheat contract price to increase to about $14. At $14, the margin call would be over $31,000 per contract. There is also the likelihood of freight rate increases.

The points so far are that wheat prices could be between $5 and $11 and that the basis could be between a minus 75 cents and a minus $1.50. The second point is that a marketing plan based on a single predicted price is nearly impossible.

With the KCBT July wheat contract price down to $7.65, buying an “at-the-money” put option for $0.90 may not be a good idea. A $7.60 July 2009 put option would establish an expected minimum price of about $5.80 ($7.60 put - $0.90 premium - $0.90 basis).

Hedging 2009 wheat by selling KCBT July 2009 wheat contracts would establish an expected price of $6.75 ($7.65 - $0.90 basis).

Note that the basis in both the hedge and the put options are estimated. Thus, the hedge price and minimum prices are only estimates.

Wheat may be forward contracted in central Oklahoma for $6.65 ($7.75 - $1.10 basis) and $6.80 ($7.65 - $0.85 basis) in the Texas Panhandle.

These calculations imply that your choices in central Oklahoma are to do nothing with an expected June price of $6.75, forward contract for $6.65, hedge with an expected price of $6.75, or buy a put option with an expected minimum price of $5.80. Remember that your breakeven price before a land charge is about $5.43. With a $40 land charge, the breakeven price is $6.57.

The market has lower wheat prices to signal producers that 2009 wheat production needs to be lower than 2008 wheat production. Less acres of wheat need to be planted.

During the 2008-2009 wheat marketing year, U.S. wheat ending stocks are projected to increase 320 million bushels. World wheat ending stocks are projected to increase 900 million bushels. Another 24 billion bushels world wheat crop would result in wheat prices in the $5 range.