It is not a question of “will 2003 wheat harvest prices be below the loan rate,” but “how much below the loan prices will they go.” At this writing, the Kansas City Board of Trade July wheat futures contact price is $3.05 per bushel.
Using a mid-June central Oklahoma and Texas Panhandle basis of minus 35 cents, the expected mid-June cash price is $2.70, about 15 cents below the loan.
Prices are expected to trend lower because wheat stocks are expected to increase. USDA predictions are for May 31, 2003 wheat stocks to be 445 million bushels. This is down from 777 million bushels last year and may be compared to the 5-year average of 750 million bushels.
Sparks Commodities estimated that 2003/04 U.S. wheat production will be 2.21 billion bushels compared to 1.62 billion bushels last year and a 5-year average of 2.3 billion bushels. With ending stocks of 445 million bushels, production of 2.21 billion bushels and imports of 80 million bushels, total wheat supply for the 2003/04 wheat-marketing year is expected to be 2.74 billion bushels.
For the 2002/03 wheat-marketing year, domestic wheat use for food, seed and feed is projected to be 1.14 billion bushels compared to a 5-year average of 1.2 billion bushels. Both food and seed use is expected to be about average.
Feed use is projected to be 125 million bushels compared to a five-year average of 285 million bushels.
Food and seed use during the 2003/04 marketing year should be about the same as the 5-year average of 1.02 billion bushels. Feed use will depend on corn and feed grain supplies. Thus 2003 corn production will have a major impact on wheat prices.
A large corn crop should not have much wheat price impact. However, a short corn crop could help wheat prices.
If the corn crop is 10 billion bushels as expected, corn stocks will increase and corn price will remain low. Low corn prices could result in about 125 million bushels of wheat used for feed and total domestic use of about 1.14 billion bushels during 2003/04.
For the 2003/04 marketing year, there is little reason the wheat exports will be much higher than 900 billion bushels. Higher exports would require lower foreign wheat production than is presently expected.
Given the above scenario, total U.S. wheat use would be 2.04 billion bushels and production would be 2.21 billion bushel. This implies that wheat-ending stocks would increase from 445 million bushel to 615 million bushels.
If there is a short corn crop and corn prices increase, wheat used for feed could increase to the 5-year average of 285 million bushels. In this case, domestic wheat use would be about 1.3 billion bushels.
With exports of 900 million bushels, total wheat use would be 2.2 million bushels and wheat-ending stocks would remain near 445 million bushels.
The point is that a 200 million bushel change in expected 2003/04 wheat stocks is needed for wheat prices to increase. The change could come from U.S wheat production, foreign wheat production and/or corn production.
Lower foreign wheat production would result in higher exports. Higher corn production would result in increased wheat use for feed.
Current conditions of the U.S. and foreign wheat crops and planting conditions in the Corn Belt do not look favorable for increased wheat prices. Current conditions are reflected in the KCBT July wheat contract price of $3.05 per bushel and a projected mid-June cash price in central Oklahoma and the Texas panhandle of $2.70. This is about 10 cents below the government loan rate.
The KCBT July wheat contract price is expected to remain between $3 and $3.20 for the next few weeks and maybe into harvest. The June basis is expected to decline about a minus 35 cents.
Dr. Anderson is an economist at Oklahoma State University in Stillwater. Readers may call 405-744-6082, or e-mail Anderso@okstate.edu.