At this writing, wheat may be sold in Oklahoma for about $7.35 and for about $7.20 in the Texas Panhandle. These prices were calculated subtracting a zero basis for Oklahoma and a minus 15- cent basis for the Texas Panhandle from the Kansas City Board of Trade (KCBT) September wheat contract price.
Projected November/December wheat prices could be as high as $9 or as low as $6. Are wheat producers willing to risk having to sell wheat at $6 for the opportunity to sell wheat at $9? This risk may be avoided by selling wheat for $7.35.
Current prices are based on the KCBT September wheat contract price and wheat sold in November will be based on the KCBT December wheat contract price.
At this writing, there is a 15-cent difference between the KCBT December wheat contract price and the September contract price. The market is offering 15 cents to store wheat from now until the November/December time period.
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Commercial storage is about 4 cents per bushel per month. Interest cost is about 2 cents per bushel per month. Total storage cost per month is about 6 cents. Using these cost estimates, storing wheat from July 1 until November 15 would cost about 27 cents. The market is offering 15 cents.
Another factor to consider is the basis (local cash price minus the KCBT wheat contract price). For the five wheat marketing years 2003/04 through 2007/08, the average June nearby basis was minus 36 cents and the range was from minus 26 cents to minus 47 cents. For the five wheat marketing years 2008/09 through 2012/13, the average June nearby basis was minus 72 cents and the range was from minus 15 cents to minus $1.21.
The current nearby basis is near zero in Oklahoma and minus 15 cents in the Texas Panhandle. This basis is historically high and signals that the market wants to buy wheat now.
The five-year monthly average June wheat price is about $6.40 in Oklahoma and $6.25 in the Texas Panhandle. Cash prices are about 95 cents above average in both Oklahoma and the Texas Panhandle. This is also a signal to sell wheat.
Above average prices are functions of above average basis (local price competition) and above average KCBT wheat contract prices (relatively tight stocks and strong demand). After the harvest is complete, local competition and strong demand may decline.
Wheat is demanded in the U.S. flour milling market, the export market, and the feed market. Export demand may decline after the European, Russian, and Ukrainian harvests are complete in September. Feed demand may decline after the U.S. corn harvest is well underway in September.
Winter wheat production in the U.S. is projected to be only 6 percent of world wheat production. Total U.S. wheat production is projected to be 8.1 percent of world production.
World wheat ending stocks are projected to be 6.7 billion bushels compared to 6.6 billion bushels last year and a five year average of 7.1 billion bushels.
U.S. corn production is projected by the USDA to be 14 billion bushels. Trade estimates have corn production closer to 13.7 billion. Lower than projected corn production and/or world wheat production should result in higher wheat prices. Higher than expected corn and world wheat production should result in lower wheat prices. Neither of these will be known until September.
The essential question is: “How much am I willing to risk for the potential of $9 wheat?” A $6 wheat price is just as likely as $9. You can take $7.35 ($7.20 in the Panhandle) now.