At this writing, the Kansas City Board of Trade (KCBT) July wheat contract price is $3.55 per bushel. Using a minus 40-cent basis for Central Oklahoma and the Texas Panhandle, the cash price during June 2006 is projected to be $3.15. As the KCBT July contract price changes, the projected price will change.

What I would like to do in the following is to compare the current situation to the average situation over the last five years and the current projected price to the five-year average price. As the current situation varies above or below the five-year average, the expected price will vary above and below the five-year average price. This holds true for both projecting the average June price and for projecting the 2006-’07 wheat marketing-year average price.

During the last five years, the U.S. June wheat price has averaged $3.11. Oklahoma and Texas Panhandle June wheat prices have averaged $3, about 11 cents less than the U.S. average price.

The five-year average annual U.S. wheat price is $3.30. Oklahoma and Texas Panhandle wheat prices have averaged $3.18 over the last five yeas, about 12 cents less than the U.S. average price.

These average prices have been the result of U.S wheat ending stocks that averaged 580 million bushels, and world wheat-ending stocks that averaged 5.8 billion bushels. For the 2005-’06 wheat-marketing year that ends May 31, the projected U.S. ending stocks are 530 million bushels, and world-ending stocks are projected to be 5.3 billion bushels.

Below average U.S. and world-ending stocks have resulted in a projected 2005-’06 wheat marketing year average price of $3.38.

The June 2006 wheat price will mostly be the result of U.S. and world wheat-ending stocks and the expected size of the 2006 U.S. winter-wheat crop. The expected size of the 2006 world wheat crop will have some effect but not as much as the U.S. winter-wheat crop size.

United States and world wheat stocks are expected to be below average: United States’ 530 million bushels, compared to 580 million bushels and world 5.3 billion bushels compared to 5.8 billion bushels. Note that the KCBT July ’06 wheat contract price is projecting $3.15 compared to a $3 average — below average stocks and above average projected price.

The USDA releases the 2006 winter wheat seedings (planted acres) report on Jan. 12. Some private projections indicate U.S. winter wheat seedings for 2006 harvest are higher the seedings for the 2005 wheat crop.

Seedings are how much wheat has been planted and are the maximum acres that may be harvested. Production will depend on the number of harvested acres and the yield. Weather will impact both harvested acres and yield.

Higher production implies higher stocks and should imply lower prices. At the present time, KCBT wheat contract prices do not indicate expectations for higher 2006-’07 marketing year stocks or the prices indicate sufficient demand to offset any increase in production.

The market may be taking into consideration the impact of the drought. Except for southern Kansas, the severity of drought has increased over much of the hard red-winter wheat area.

Two things to watch are the KCBT July wheat contract price and the spread (difference) between the July and December contract prices. Important price levels for the July contract are $3.45, $3.65 and $3.85. Two closes below $3.45 indicate that the market expects the 2006 U.S. winter-wheat crop to be above average and stocks to increase. Closes above $3.65 indicate that the market expects the 2006 winter-wheat crop to be below average.

There is a 17-cent spread between the KCBT July and December contract prices (July —$3.55; December — $3.72). This implies that the market currently expects 2006-’07 marketing year stocks to remain about the same as during the 2005/06 marketing year.