Wheat prices have fallen about 76 cents per bushel since mid-October. There does not appear to be anything on the horizon that will cause prices to stop going down. The central Oklahoma and Texas Panhandle wheat price on June 20, 2003, is expected to be $3.20.
The good news for U.S. producers is that Australia's wheat production is projected to be 404 million bushels or 54 percent below last year. Australia's exports are projected to be 220 million bushels, down from 603 million last year. It was reported that Australia imported wheat from England and will probably import more.
The bad news is that Australia's lack of production is about the only positive price factor in the market. There are a number of negative price factors.
From a technical standpoint, the critical price levels with the Kansas City Board of Trade March wheat contract is $3.80 and $4. Wheat prices appear to be moving in 20 cent increments. If the price goes below $3.80, the downtrend will continue. Prices above $4 will indicate that the downtrend has halted, at least momentarily.
Factors that are driving prices lower are low U.S. wheat export demand and the good condition of the 2003 winter wheat crop.
Demand for U.S. wheat exports is the lowest since the 1985/86 wheat-marketing year. Also, exports for the “major exporters,” Argentina, Australia, Canada, the European Union and the U.S. are projected to be 68 percent of total world exports. This is the lowest on record.
What has happened is that Australia's reduction in exports and lower exports by Argentina, Canada and the United States are being partially offset by “non-traditional” exporting countries. The other factor is that total world exports are projected to be 3.73 billion bushels compared to the 10-year average of 4.37 billion bushels.
An example is that China, which is considered a “major importer”, exported 150,000 metric tons (5.5 million bushels) of flour milling wheat. This is the first milling-quality wheat that China has exported since 1949.
China's wheat export of 5.5 million bushel is small compared to 3.73 billion bushels total exports. What is important is the signal that China will not be importing much wheat over the next few years. The U.S. wheat market was depending on Chinese imports.
The 2003 winter wheat crop is in good condition around the world. U.S. winter wheat planted acres are projected to be 4 to 5 percent higher than last year. Add the fact that producers have increased fertilizer application and wheat production is expected to increase in 2003.
Production values to watch are 2.1 million bushels for the United States and 20.1 billion bushels for foreign. These are minimum levels to meet world consumption. Lower production will mean lower stocks and higher prices.
U.S. wheat production above 2.3 million bushels and foreign above 19.6 will cause prices to be below the projected $3.20.
The market is offering producers about $3.05 for 2003 harvest delivered wheat in central Oklahoma and the Texas panhandle. This is about 25 cents above the loan rate.
The risk in not forwarding wheat for 2003 harvest delivery is about 25 cents per bushel. However, with U.S. wheat-ending stocks projected to be 358 million bushels, the lowest since 1973/74 marketing year, wheat prices could be $4 or higher next June. All that is needed is for U.S. wheat production to be below 2.1 million bushels.
Wheat stocks are tight. There will be a weather market. This means 15 to 20 cent price rallies and 15 to 20 cent price declines.
Dr. Anderson is an economist at Oklahoma State University in Stillwater. Readers may call 405-744-6082, or e-mail Anderso@okstate.edu.