About the only cash wheat being sold during December is by producers who want money for Christmas or producers who are cleaning-up year-end sales.
About the only cash wheat being sold during December is by producers who want money for Christmas or producers who are cleaning-up year-end sales. During January and February, a few producers sell the remainder of their 2013 harvested wheat. During this period wheat price movements tend to be sporadic and unpredictable.
The 2013/14 marketing-year wheat not harvested is mostly in Argentina and Australia and these harvests will be essentially finished in December. By January 1, the 2013/14 wheat marketing-year wheat supply will be known.
During December, the wheat futures contract trading volume can be relatively low, which may result in relatively large price swings. Year-end position adjustments by fund traders may also cause exaggerated price movements.
The next wheat to be harvested is in India, Pakistan, and some Middle-Eastern and North African countries. These harvests normally begin in March and April. China’s wheat harvest also starts in April. Production from these countries will be included in the 2014/15 wheat marketing year supply.
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After the Argentine and Australian wheat crops are in the bin, the next exportable wheat to be harvested is the U.S. winter wheat crop. The next bread wheat (hard red or hard white winter wheat) to be harvested is the U.S. hard red (white) winter wheat crop.
The current condition of the 2014 U.S. hard red winter (HRW) wheat crop is already factored in current wheat prices. Since the 2014 U.S. HRW wheat crop entered dormancy in relatively good condition, weather should not have much impact on price—unless extremely cold temperatures with little to no snow cover causes extensive winter kill.
The Oklahoma and Texas panhandle wheat basis has essentially be unchanged since August. Changes to cash prices have been nearly 100 percent due to changes in KCBT wheat futures contract price changes.
Current cash wheat prices are based on the KCBT March wheat contract price. The 2014 wheat harvest forward contracts prices are based on the KCBT July wheat contract price.
The KCBT March wheat contract price has support at about $6.94. Two closes below $6.94 will indicate a target price of $6.76. If the KCBT July wheat contract price closes below $6.85, the contract target price will be $6.67.
Wheat prices appear to have built a bottom and established a potential upward price pattern. Then Canada and Australia announcements of higher production resulted in a 15-cent price decline. Until the USDA/WASDE report is released January 10, the likelihood of other negative announcements is relatively small.
Since most of the 2013 produced wheat has been sold, producers tend to be more attentive to the potential 2014 harvest price than current prices.
At this writing, the KCBT July wheat contract price is $6.88. In most of Oklahoma and the Texas Panhandle, elevators are offering a forward contract basis of 40 cents less than the KCBT July wheat contact price. At this writing, wheat may be forward contracted for $6.48 ($6.88 minus 40 cents).
Now that 99 percent of the 2013/14 world’s wheat has been harvested and most of the 2014 world’s winter wheat is in dormancy, demand will be the major determinant of wheat prices. With an abundance of corn to feed, U.S. wheat, prices will be determined primarily by export demand.
U.S. hard red winter wheat stocks are relatively tight. If there is an extremely cold winter that causes winter kill, wheat prices are expected to increase. Otherwise, it will be late February and early March, when the hard red winter wheat crop comes out of dormancy, before the 2014 wheat crop condition has a major influence on wheat prices.
Prices tends to overreact during December and, with relatively tight wheat stocks, volatile prices may remain until the combines start running in late May or early June.