In mid-June 2012, Oklahoma and Texas cash wheat prices were near $6 per bushel. The wheat harvest was running about two weeks ahead of average. The USDA was projecting that wheat ending stock would decline from 728 million bushels for the 2011/12 marketing year to 694 million bushels for the 2012/13 marketing year. World wheat ending stocks were projected to be 6.91 billion bushels compared to 7.2 billion bushels the year before.

Producers had planted an estimated 95.9 million acres of corn, and 2012/13 corn ending stocks were projected to increase to 1.88 billion bushels compared to 851 million bushels for the 2011/12 marketing year. In mid-June, the cash price of corn was about $5.50.

Little has changed in the wheat supply and demand situation. Current U.S. wheat ending stocks projections are 754 million bushels, and world wheat ending stocks are projected to be 6.5 billion bushels.

Even with little change in projected stocks, cash prices in Oklahoma and Texas are near $8.60, which is a 43 percent increase in price from a 3.5 percent increase in U.S. ending stocks. Something beside wheat supply caused the price increase.

Between June 18 and June 26, wheat prices increased from $6 to $7. From June 28 to July 12, wheat prices increased from $7 to $8. On July 19, wheat prices peaked near $9. Since July 19, cash wheat prices have traded between about $8 and $9. The price at this writing is about $8.55.

The major reason for the $3 increase in wheat prices between mid-June and July 19 may have been the drought’s impact on potential corn production and corn prices. Between mid-June and July 19, Oklahoma and Texas Panhandle corn prices increased from $6.28 to $8.85. The current panhandle price is $7.82

In the June WASDE (World Agricultural Supply and Demand Estimates), 2012/13 U.S. corn ending stocks were projected to be 1.88 billion bushels. In the July WASDE, corn ending stocks were lowered to 1.18 billion bushels, and the current projection is for 647 million bushels.

Without the drought’s impact on corn production, ending stocks, and corn price, wheat prices would probably be between $6 and $7.

United States wheat ending stocks are projected to be 754 million bushels compared to a five-year average of about 708 million bushels. World wheat ending stocks are projected to be 6.5 billion bushels compared to a five-year average of 6.5 billion bushels. Wheat stocks are not tight.

As the marketing year has evolved, sufficient amounts of wheat are available to meet world demand for the 2012/13 marketing year. The market may be concerned about the 2013/14 marketing year. If the drought continues, U.S. winter wheat production will be well below normal, and U.S. wheat stocks will have to be rationed by higher prices.

What is the definition of “higher prices?” The above scenario implies that current wheat prices may be the result of tight corn stocks (relatively high corn prices) and poor winter wheat conditions caused by the drought.

A possibility is that the wheat market (flour millers and speculators) want relative high wheat prices to keep wheat from going into the feed market. If so, wheat prices will decline with a relatively large corn harvest in September and October 2013.

The U.S. winter wheat crop is made in March, April, and May. Even though wheat conditions are near historical lows, producing an above average crop is still possible.

Without tight corn and without poor winter wheat crop conditions, wheat prices could easily be in the $6 to $7 range. Then $7.50 wheat could be defined at “relatively high prices,” which makes “higher price” to be in the $9 to $9.50 range.