The odds of $5 wheat are increasing. Cash wheat prices have increased from $2.66 per bushel on July 7 to $3.65 at this writing. Prices have to increase another $1.35 to reach $5. The target date for $5 wheat is Oct. 16.

Five-dollar wheat sounds good but what is important is, “are wheat prices going to go up or down?” The honest answer is that no one knows however, the odds are relatively high that wheat prices will be higher in November than they are now. The next question is, “how long will the trend last?”

In 2002, wheat harvest prices were about $3 per bushel. Wheat prices peaked at $4.73 on Sept. 9. Between June 20 and Sept. 9, 2002, there was a $1.73 increase in cash wheat prices.

Since June 20, 2003, cash wheat prices have increased about $1.70. Factors driving wheat prices have been lower U.S. spring wheat production, lower foreign wheat production and relatively strong wheat exports.

Key market factors to watch are U.S. corn production, Argentine and Australian wheat production and the drought in the Great Plains and grain exports.

The five-year average of wheat used for feed is 255 million bushels. If wheat prices are high relative to corn, wheat used for feed declines and wheat prices are negatively affected. During 2002, only 102 million bushels of wheat were used as feed and 175 million bushels are projected to be used during the 2003/04 wheat marketing year.

Corn hurting wheat?

Relatively high corn production may result in low corn prices and less wheat used as feed. Thus, wheat-ending stocks may be higher than currently projected.

Corn production is projected to be 10.1 billion bushels compared to 9 billion bushels last year and a five-year average of 9.5 billion bushels. Corn ending stocks are projected to be 1.2 billion bushels compared to a 5-year average of 1.6 billion bushels.

The good news is that world corn ending stocks are projected to be 3.1 billion bushels compared to a five-year average of 5.7 billion bushels. Relatively low world corn stocks could result in higher than expected U.S. corn exports and higher corn prices. Watch corn prices.

Argentina's wheat production is projected to be 533 million bushels compared to 452 million last year and a five-year average of 535 million bushels. Argentina's wheat ending stocks of 73 million bushels are projected to stay above the five-year average of 39 million bushels.

Australia's wheat production is projected to be 845 million bushels compared with 345 last year and a five-year average of 756 million bushels. Because last year's short crop lowered wheat stocks, Australia's wheat ending stocks are projected to be 95 million bushels compared with a five-year average of 146 million bushels.

Crop committed

Another positive price factor is that the Australian Wheat Board's managing director said that a significant amount of the 2003 wheat crop has been committed.

Argentina's wheat harvest is mid-November through mid-January. Australia's wheat harvest is October through December. If production expectations decline for either of these countries' crops, wheat prices will dramatically increase.

Abnormally dry to severe drought conditions are prevalent throughout the Great Plains. If the dry conditions persist into late-October, lower 2004 wheat production will be factored into wheat prices.

Prices tend to peak early in “short-crop” years. Thus, wheat prices may follow the same pattern as last year and peak in the September through October time period. It will take potential production problems in Argentina and Australia and/or continued dry conditions in the Great Plains to maintain the current price rally.

A marketing strategy to consider is to start staggering wheat into the market in September. This may be accomplished by selling 25 percent in each September, October, November and December.