It is time to develop a strategy for selling the 2005 wheat crop. This strategy should depend on how wheat is normally sold. However, most of us want an idea of what wheat prices are going to do before developing a marketing plan.
Realistically, 2005/06 wheat marketing-year wheat prices could be anywhere from $2.50 to $4. However, the odds are the average will be somewhere around $3.30 per bushel. This projection is based on estimates of U.S. and world wheat ending stocks, U.S. and foreign wheat production and U.S. and foreign wheat use.
Everything about supply and demand for the 2005/06 marketing year is unknown. However, using current estimates as benchmarks facilitates making price and price trend estimates. The benchmarks may then be used to monitor changing price expectations.
It was good price news that U.S. winter wheat planted acres were estimated by the USDA to be 41.6 million acres compared to 43.4 million acres last year and a 5-year average of 43 million acres. Assuming that spring wheat planted acres will be slightly higher than last year's 16.3 million acres; total U.S. wheat may be 59 million planted acres.
If 2005/06 average yield matches the 5-year average of 41 bushels per acre, total U.S. wheat production would be 2.05 million bushels. Compared to 2.15 billion bushels last year and a 5-year average of 2.04 billion bushels.
The United States' 2004/05 marketing-year wheat ending stocks are projected to be 583 million bushels. Using 2004/05 wheat ending stocks of 585 million bushels as beginning stocks for 2005/06, production at 2.05 billion bushels and imports of 65 million bushels, total 2005/06 marketing-year U.S. wheat supply would be 2.7 billion bushels.
Total wheat supply for 2004/05 is estimated to be 2.77 billion bushels and the 5-year average is 2.87 billion bushels.
2004/05 marketing-year domestic wheat use is estimated to be 1.19 billion bushels and one billion bushels are projected for export. Total U.S. wheat use is estimated to be 2.19 billion bushels. 2005/06 marketing-year wheat use should be about the same as 2004/05 marketing-year use.
With 2005/06 expected total supply of 2.7 billion bushels and use of 2.19 billion bushels, 2005/06 marketing year ending stocks are projected to be 515 million bushels. This may be compared to 2004/05 marketing-year ending stocks of 583 million bushels and ending stocks of 546 million bushels in 2003/04.
What the above estimates show is that if 2005/06 marketing-year wheat production is around 2.1 billion bushels, wheat stocks will not be much different than during the last two years. Minor changes in wheat stocks imply minor changes in price.
The average annual U.S. wheat price was $3.40 for 2003/04 and $3.35 for 2004/05. On June 20, 2003, the central Oklahoma wheat price was $2.71. On June 20, 2004, the central Oklahoma wheat price was $3.40. United States wheat production will be the major determinant of the 2005 wheat harvest price. The odds are that the June 20, 2005, wheat price will be closer to $2.70 than $3.40.
Foreign production will have some impact on the June wheat price but will have the largest impact on the price trend after Sept. 1.
Currently, the KCBT July wheat contract price implies that June wheat prices will be about $2.75. This was determined by subtracting a 40-cent basis for the KCBT July wheat contract price.
If 2005/06 U.S. and foreign wheat production estimates are lowered, the June 2005 wheat price estimate will be raised. An increase in wheat production estimates will result in lower price estimates.