Record 2012 corn production and above average 2012 wheat production could easily result in relatively low (little) wheat and corn prices. If U.S. and foreign wheat production is greater than currently expected, wheat prices may decline to new crop corn prices.
Wheat tours in Oklahoma and Kansas both predicted record or near record yields. Oklahoma’s percent harvested acres were projected to be about 75 percent compared to an average of 69 percent. If the weather cooperates, U.S. wheat production could be 250 million bushels higher than 2011 wheat production.
U.S wheat ending stocks may increase from less than 800 million bushels in 2011/12 to more than 900 million bushels in 2012/13. Hard red winter wheat production for 2012 could be more than 1 billion bushels, which would be 35 percent higher than 2011 production.
The USDA projected 95.9 million acres will be planted to corn. Some analysts project that 2012 U.S. corn yields will average 164 bushels per acre. Corn production is projected to top 14 billion bushels.
Corn ending stocks may increase from about 800 million bushels to more than 1.6 billion bushels in 2012/13. One analyst projects 2012/13 ending stocks to be 2 billion bushels.
Due to expected record corn production and significantly higher stocks, lower corn prices are already reflected in the Chicago Board of Trade corn futures contract prices. The spread between the CBT July corn contract price and the December corn contract price is 89 cents, with May higher than December. At this writing, the CBT July 2012 contract price is $6.16 compared to a December corn contract price of $5.27. In mid-May, 2011, the July corn contract price was about $7.20.
Lower wheat prices, due to higher production and stocks, are reflected in the Kansas City Board of Trade. In April, 2011, the KCBT July 2011 wheat contract price was around $9. At this writing, the July 2012 wheat contact price is $6.37.
What is not present in the wheat market that is present in the corn market are lower prices for the new crop (2012) relative to the old crop. The KCBT July wheat contract price is 39 cents lower than the December contract price. The CBT July corn contract price is 89 cents higher than the CBT December corn contract price.
The market expects corn stocks to go from relatively tight to excess. Wheat stocks are not expected to change from the above average stocks situation.
The corn/wheat price relationship is expected to favor feeding wheat until the August/September time period. At this writing, the KCBT September wheat contract price is $6.49 compared to a CBT September corn contract price of $5.37.
Two factors that may change the corn/wheat price relationship are lower than expected corn production and/or higher than expected wheat production. Indications are that wheat production may be higher than previously expected.
The wheat tour reports indicate that U.S. wheat production is higher than previously expected. Timely rains in both Eastern and Western Europe are reported to have resulted in an increase in wheat production expectations. China’s wheat areas have also received timely rain that is reported to have increased production expectations.
India is reported to be harvesting its third record high wheat crop in a row.
Some analysts are now predicting that 2012/13 world wheat ending stocks will be equal to or slightly higher than 2011/12 ending stocks. If U.S. corn production is greater than 14 billion bushels—and the odds favor this—corn supplies will be more than adequate and corn prices will decline.
Wheat supplies are expected to result in wheat priced as a food commodity rather than a feed commodity. Wheat prices are not expected to decline as low as corn prices.