The Kansas City Board of Trade July wheat contract price increased from $3.44 on Dec. 9 to $4.29 on Feb. 9. By this writing, wheat prices had fallen about 16 cents. Moisture and temperature will determine where prices go from here.
Crop reports indicate that Oklahoma and Texas's wheat crop is mostly in poor to very poor condition while Kansas' wheat crop is in mostly good to excellent. Kansas is the No. 1 wheat producer and produces about twice as much as Oklahoma and Texas.
Of Oklahoma's wheat crop, 58 percent is reported poor to very poor, 32 percent fair (average), 10 percent good and 0 percent excellent. Oklahoma's topsoil moisture is reported to be 67 percent very short, 26 percent short, 7 percent adequate and zero surplus.
Eighty-nine percent of Texas's wheat crop is reported in poor to very poor condition with 10 percent fair and 1 percent good. Soil conditions reported in the Texas High Plains were about 98 percent short to very short and 2 percent adequate.
Only 3 percent of the Kansas wheat crop is reported to be very poor. Ten percent is reported to be poor, 35 percent fair, 46 percent good and 6 percent excellent. Seventy-two percent of Kansas's soil moisture is reported to be very short to short, 28 percent adequate and 0 percent adequate. Last year, only 10 percent of Kansas's soil moisture was reported to be short to very short.
Wheat prices increased about 85 cents per bushel because the market is concerned that 2006 U.S. wheat production will not be sufficient to maintain stocks. United States wheat ending stocks have been between 540 million bushels and 546 million bushels for the last three marketing years. The U.S. wheat price averaged $3.40 for each of the last three years.
Reviewing historical U.S. wheat ending stocks' relationship to wheat prices indicates that U.S. wheat ending stocks need to fall below about 480 million bushels to have a dramatic price impact. In the 1996/'97 marketing year, U.S. wheat ending stocks were 440 million bushels and the average annual price was $4.30. In the 2002/'03 wheat-marketing year, wheat ending stocks were 490 m.b. and the average price was $3.56.
Other factors that will impact the 2006/'07 marketing year wheat price are foreign wheat production and U.S. corn production. There has not been much news about the foreign wheat crop. This may imply that the foreign wheat crop is progressing as normal.
United States corn ending stocks are projected to be 2.4 billion bushels compared to a five-year average of 1.5 billion bushels. Corn-ending stocks have not been above 2.4 billion bushels since 1987's 4.3 billion bushels. Low corn prices tend to limit wheat prices.
There is over three months before the U.S. winter wheat harvest and a lot can happen between now and then. KCBT July wheat contract prices appear to be trading in 20-cent price ranges. Key KCBT July contract price levels to watch are $3.65, $3.85, $4.05 and $4.25.
At this writing, the July contract price is $4.13. Two consecutive closes below $4.05 would break the uptrend and would signal that the next target price is $3.85. It would take two consecutive closes below $3.85 to signal that a downtrend has been established. Conversely, it will take two consecutive closes above $4.25 to signal that the uptrend will continue.
Elevators in Oklahoma and the Texas Panhandle are offering about 35 cents less (-35¢) than the KCBT July wheat contract price for harvest delivered wheat. At this writing, the forward contract price for harvest delivery is about $3.78 per bushel ($4.13 - $0.35).
No one knows what wheat prices will be at harvest. The question to ask is, “What will hurt me the most? Not having the opportunity to sell wheat at $4.30 or having to sell wheat at $3.30." If you can not afford the lower price, price some wheat for harvest delivery.