The “word on the street” is that wheat prices are tied to corn prices which are tied to ethanol demand which is tied to energy prices. If this is the case, then wheat producers should prepare for a rough ride.

At the current time, there are two wheat markets. The market represented by Kansas City Board of Trade (KCBT) March and May contracts is setting the price for producers and merchandisers that are currently selling or buying wheat. The second market is represented by the KCBT July wheat contract and is for producers and merchandisers that are selling or buying wheat for the 2007 crop.

Current wheat prices do not appear to be tied to the corn price. The KCBT March wheat contract price is on a downtrend. Within the last two months, the March wheat contract has declined from about $5.50 to $4.90 and has been as low as $4.72. During the last three weeks, the March contract price has declined from $5.05 to $4.90.

During November and December, the Chicago Board of Trade (CBT) March corn contract price was in a sideways pattern between $3.60 and $3.90. Between January 10 and 12, the March corn contract price went from $3.60 to $4.20 and then remained between $4 and $4.20.

It is relatively clear that nearby wheat and corn prices are not exhibiting the same price patterns and that the wheat market is not currently dependent on the corn market. As long as wheat stocks are tight, wheat will be used for food and exports by the market keeping wheat prices above corn prices.

In mid-September, the CBT July corn contract price was about $2.70. An uptrend was established and lasted until, on November 27, the July corn contract price reached $3.98. A sideways price pattern was then established with prices staying between $3.70 and $4. On January 10 through 12, the contract price went from $3.71 to $4.21 and has remained between $4.15 and $4.30.

In mid-September, the KCBT July wheat contact price was $4.38. An uptrend was established and the July contract price peaked on November 30 at $5.17. Since December 8, the July contract price has been between $4.76 and $5.10. By January 10, the July price had fallen to $4.76. Between January 10 and January 12, the July contract price increased from $4.76 to $5.06.

The KCBT July wheat contract and the CBT July corn contract show similar price patterns. Both were in an uptrend in the fall and early winter and a sideways pattern in January and February. Also, the KCBT July wheat contract price and the CBT July corn contract price translates to about the same June 2007 cash wheat and corn prices.

Wheat may be forward contracted for harvest delivery at about 40 cents below the KCBT July wheat contract price. At this writing, the KCBT July wheat contract is $4.99. This implies a June wheat price of about $4.59.

Currently, corn delivered to feedlots or feed mills in Oklahoma or the Texas Panhandle costs about 60 cents above the CBT March contract price. The June basis for corn delivered in Oklahoma and the Texas Panhandle is expected to be at least 60 cents. At this writing, the CBT July corn contract price is $4.17. This implies a June delivered corn price of $4.77.

There are signs that 2007, new-crop, wheat price is being influenced by the potential June/July corn price. This implies that 2007/08 wheat prices may be strongly influenced by the corn price which is tied to ethanol production which is tied to the energy market. Wheat prices can be expected to be volatile and unpredictable.

If 2007 U.S. or foreign wheat production is below average, wheat prices will dramatically increase. If U.S. corn production is below average, wheat price will dramatically increase. If wheat production is above average and corn production is above 12.6 billion bushels, wheat prices will go in the tank. This spring, both wheat and corn price will be volatile because of changing weather conditions.

In volatile markets, prudent producers develop and use mechanical marketing strategies. One strategy is to set specific dates to have a specific percentage of wheat sold and then follow the plan irrespective what is going on in the market.