FOR THE last few weeks, wheat prices have just wallowed around. The Kansas City Board of Trade (KCBT) December wheat contract price range has been between $3 and $3.10, and the Chicago Board of Trade (CBT) December wheat contract range has been between $2.50 and $2.60. Note that the KCBT represents hard red winter (HRW) wheat and the CBT represents soft red winter (SRW) wheat.
The Texas gulf basis has remained about 35 cents above the KCBT December contract price, and the Louisiana gulf basis held about 20 cents above the CBT December contract price.
It is interesting to note that the KCBT December wheat contract price is about 40 cents higher than that CBT December contract price. Also, the Texas gulf HRW wheat basis is about 15 cents higher than the Louisiana gulf SRW wheat basis. This implies that HRW wheat prices are about 55 cents per bushel higher than SRW wheat prices.
Market analysts are predicting that it may be January before wheat prices resume the upward trend. The Australian and Argentine winter wheat harvest has started, and as this wheat enters the export market, wheat prices are pressured.
Positive factors that indicate that wheat prices will increase are potential problems with Australia's wheat crop, world wheat ending stocks and U.S. winter wheat planted acres. Negative price factors include the amount Australia's exportable wheat, U.S. wheat ending stocks and improved growing conditions in Texas, Oklahoma and Kansas.
Market analysts are also projecting Australia's wheat crop to be between 660 million and 700 million bushels (mb) compared to USDA's October estimate of 770 million. It is unclear how these private estimates have impacted wheat prices. It is my opinion that the market is waiting for the USDA's Australian wheat production estimate before placing any buy or sell orders.
Irrespective of whether USDA or private estimates are correct, both estimates are below Australia's five-year average production of 778 million bushels. The price impact of lower production will partially be offset by the fact that Australia's wheat ending stocks were about 60 million bushels above the five-year average.
World wheat ending stocks for the 2000/01 wheat-marketing year are projected to be 4.1 billion bushels compared to a five-year average of 4.6 billion bushels. If Australia's 2000/01-wheat production is lowered 100 million bushels, world wheat ending stocks will be even lower. United States wheat ending stocks are projected to be about 888 million bushels, about 200 million above average.
Probably the biggest price factor is U.S. winter wheat planted acres. Soft red winter wheat was planted under relatively good conditions and planted acres are expected to be slightly higher than last year. Hard red winter wheat was planted under either too dry or too wet conditions and are expected to be slightly lower than last year. Total winter wheat planted acres are expected to be slightly less than last year.
Higher wheat prices may result in less abandoned wheat acres and total harvested winter wheat acres in 2001 may not be about the same as last year. Given less than optimal planting conditions for the HRW wheat, yields may be about the same as last year.
2000 HRW wheat production was 844 million bushels, beginning stocks were 458 million bushels for a total supply of 1,303 million bushels. Total use is projected to be 959 million bushels and ending stocks are projected to be 344 million bushels.
The most likely scenario is for 2001 HRW wheat production to be about the same as 2000 production. With beginning stocks (344 mb) about 115 million bushels less, total HRW wheat supply during the 2001/02 marketing year will be less than last year and ending stocks will decline.
The above wheat situation indicates that wheat prices should increase after Jan. 1. Timing will depend on the size of the Australian wheat crop, and if the remaining 25 percent of the hard red winter wheat crop gets planted.