Analysts have reported that flour mills in both the U.S. and around the world have bought wheat to meet demand until March 2008. This implies that these flour mills still need to purchase wheat for April and May.

If the 2008 wheat crop looks good in April and May, buyers will delay more purchases. If the 2008 wheat crop looks poor, the buyers will try to stay current on wheat needs. Irrespective of the U.S. wheat crop condition in April and May, buyers will need to buy U.S. winter wheat as soon as it is harvested. This pent-up demand will help keep hard red winter wheat prices relatively high.

Coming into the 2008 wheat harvest, U.S. wheat ending stocks are projected to be 312 million bushels and the stocks-to-use ratio (ending stocks divided by total use) is projected to be 13.5 percent. The five-year average U.S. stocks-to-use ratio is 24.2 percent. The stocks-to-use ratio is the best measure of the supply/demand situation.

The world's wheat ending stocks are projected to be four billion bushels and the stocks-to-use ratio is projected to be 17.8 percent. The five-year average world stocks-to-use ratio is 23.7 percent. Both the U.S. and world's stocks-to-use ratios are at or near record lows.

Before the U.S. winter wheat harvest, the only exportable wheat to be harvested is in Argentina and Australia. Argentina is projected to produce 570 million bushels compared to a five-year average of 533 million bushels. Australia is projected to produce 478 million bushels compared to a five-year average of 692 million bushels.

Both Argentina and Australia's wheat production has been factored into the current market price. The 2007-2008 world's wheat marketing year production will be near 22.17 billion bushels. United States 2007-2008 marketing year wheat production was 2.07 billion bushels.

At this writing, the Kansas City Board of Trade July 2008 wheat contract price is $6.86.

The expected June 2008 basis is about a minus 50 cents. This implies a June 2008 cash wheat price of $6.36. The current cash price is about $7.

During the 2007-2008 wheat marketing year, domestic wheat use is projected be 1.15 billion bushels and exports are projected to be 1.15 billion bushels. Total 2007-2008 U.S. marketing year demand is projected to be 2.3 billion bushels.

Total wheat supply for 2007-2008 was 2.61 billion bushels (456 million bushels beginning stocks, 90 million bushel imports and 2.07 billion bushels production).

Some analysts predict that wheat planted acres will increase 3 to 5 percent. Planted acres for the 2007-2008 marketing year were 60.4 million acres. A 4 percent increase in planted acres would be 62.8 million acres.

The five-year average of percent harvested acres is 84.6 percent. Using the average percent harvested acre (84.6%), 53.1 million acres of wheat would be harvested in 2008.

The five-year average yield is 40.7 bushels per acre. If 52.6 million acres are harvested with an average yield of 40.7, 2008-2009 marketing year production would be 2.16 billion bushels.

With 2008-2009 beginning stocks of 312 million bushels, 90 million bushels imported and 2.16 billion bushel production, total wheat supply would be 2.56 billion bushels. To maintain ending stocks at 300 million bushels, 2008-2009 exports would have to decline to 1.1 billion bushels.

The above scenario shows how critical it is that 2008 U.S. wheat production be above average. Below average wheat production could be made up with foreign wheat production. The key to this is that, after Argentina and Australia, the next foreign exportable wheat harvest will start in late-August 2008.

Even with an above average 2008 U.S. wheat crop, June and July wheat prices should be relatively high. A winter wheat crop above 1.6 billion bushels could result in Oklahoma and Texas harvest prices being in the $5.80 range.