On May 27, Oklahoma wheat prices averaged about $9, and Texas wheat prices averaged about $8.75. At this writing, Oklahoma wheat prices are about $7.40, and Texas prices are about $7.25. Cash prices declined about $1.60.

On May 27, the Kansas City Board of Trade July wheat contract peaked at $9.56. At this writing, the KCBT July wheat contract price is $7.70, which is a $1.86 price decline.

A little bit of good news is that the basis improved 25 to 30 cents. The higher basis offset 25 to 30 cents of the futures price decline.

The USDA set the foundation for 2011/12 wheat marketing year (June 1 through May 31) wheat prices with the June World Agricultural Supply and Demand Estimates (WASDE). U.S. 2011 wheat production was projected to be 2.06 billion bushels compared to 2.21 billion bushels last year and a five year average of 2.2 billion bushels. Private estimates that were released after USDA’s report imply that U.S. wheat production may be higher than USDA’s June estimate.

World wheat production was projected to be 24.4 billion bushels compared to 23.8 billion bushels last year. The five-year average annual world wheat production is 24.2 billion bushels, and the record is 25.1 billion bushels.

Higher production in former Soviet Union countries (FSU) will result in higher FSU wheat exports. During the 2010/11 wheat marketing year, FSU countries exported 489 million bushels. FSU countries are projected to export 967 million bushels during the 2011/12 marketing year, an increase of 478 million bushels.

Australia’s 2011/12 wheat production is projected to be 919 million bushels compared to 900 million bushels in 2010/11. Australia’s wheat production is projected to be above average for the fourth year in a row. Australia is projected to export 625 million bushels compared to a five-year average of 490 million bushels.

Foreign 2010/11 wheat marketing year production was 21.6 billion bushels. Foreign wheat production for 2011/12 is projected to be 22.4 billion bushels. The increased production (800 million bushels) has the potential to reduce U.S. wheat exports.

United States wheat exports for the 2010/11 marketing year were 1.3 billion bushels. Wheat exports for the 2011/12 marketing year are projected to be 250 million bushels less than in 2010/11. Increased foreign wheat production and exports competition may result in a even larger decline in U.S. wheat exports.

A key indicator of prices is ending stocks. With U.S. wheat exports at 1.05 billion bushels, U.S. 2011/12 wheat ending stocks are projected to be 687 million bushels compared to 809 million for the 2010/11 marketing year. The five-year average is 703 million bushels.

If the U.S. export projection is too high, ending stocks will be higher than the current estimate. Higher stocks are what the market is currently betting on.

Only about 30 percent of the world’s 2011/12 marketing year wheat production has been harvested. Very little of the world’s exportable wheat has been harvested. The marketing year price trend is normally set in late August and early September.

Kansas City Board of Trade wheat futures contract prices indicate that the November wheat price will be about 44 cents higher than the KCBT July wheat contract price and 26 cents higher than the September contract price. The caveat is, “At what price will the September wheat contract bottom out?”

If at the time you are reading this, the KCBT September wheat contract is above $8, the expected December 1 cash price in central Oklahoma is $8.25. If the KCBT September wheat contract price is below $7.75, the expected December 1 wheat price is $7.25. The Texas panhandle price will be about 30 cents less than central Oklahoma prices.

Whatever the December 1 price is, remember that wheat in commercial storage will have about 20 cents storage and about 20 cents interest against it. Therefore, the total cost to own wheat between now and December 1 is about 40 cents. Just about what the market is offering.