The USDA has released 2012/13 wheat, corn, and soybean supply and demand estimates. Wheat 2012/13 marketing year ending stocks are projected to be 957 million bushels compared to 2011/12 marketing year ending stocks of 845 million bushels. Wheat ending stocks, for the marketing years 2007/08 through 2011/12, averaged 730 million bushels.
USDA’s average annual price projection for the 2012/13 marketing year is $6.30 compared to $7.30 for the 2011/12 marketing year. During the last five years, Oklahoma and Texas Panhandle wheat prices have averaged about 10 cents less than the national average prices.
At this writing, the central Oklahoma wheat price is about $6.90, and the Texas Panhandle price is about $6.65. If USDA’s 2012/13 average annual wheat price estimate ($6.30) is correct, between June 2012 and June 2013, Oklahoma and Texas wheat prices must decline to $6 or less.
One problem with USDA’s 2012/13 marketing year average wheat price of $6.30 is that the market may not believe it. Justification may exist for the current cash prices of $6.65 to $6.80 and Kansas City Board (KCBT) of Trade May wheat contract prices around $7.
If the market believes that a relatively large 2012 U.S. wheat crop will result in higher wheat stocks, why is the KCBT July wheat contract price 12 cents higher than the May contract price? Why is the KCBT December wheat contract price 30 cents higher than the July contract price and 42 cents higher than the May contract price?
The KCBT July 2013 wheat contract price is 34 cents higher than the KCBT July 2012 wheat contract price. The higher 2013 price is when USDA projects U.S. wheat ending stocks to be nearly a billion bushels.
The USDA estimated 2012 U.S. wheat production to be 2.165 billion bushels compared to 2.0 billion bushels in 2011. The five-year average U.S. production is 2.195 billion bushels.
Traders may believe that problems with foreign wheat production will result in higher than expected U.S. wheat exports in 2012/13. Lower Ukraine wheat production is expected to result in lower Ukrainian exports. Russian wheat production and exports may also be less in 2012/13 than in 2011/12.
Ukraine’s wheat exports were 60 million bushels higher in 2011/12 than in 2010/11. Russian wheat exports were 600 million bushels higher in 2011/12 than in 2010/11. Reduced production and exports in these two countries would almost assure higher exports in the U.S.
Also, some are speculating that drought in Northern China could result in China importing wheat during the 2012/13 marketing year.
Something has got to give. If USDA’s estimates prove to be correct, Oklahoma and Texas wheat prices will decline at least 90 cents. The KCBT December wheat contract price may decline from $7.44 to $6.44.
An example is the Chicago Board of Trade (CBT) corn contract prices. The USDA projects corn ending stocks to increase from about 800 million bushels to 1.6 billion bushels.
The CBT May corn contract price is $6.54. The CBT December corn contract price is $5.67, which is an 87 cents decline in price.
USDA’s official 2012/13 marketing year supply and demand estimates will not be released until May 10, 2012. The 2012/13 marketing year price trend normally begins in late August or September.
The 2012/13 wheat marketing year prices could go below $5 or above $12. The weather and production will be the determining factors.
As things look now, Oklahoma and Texas wheat prices will decline. But, the market is not betting that way, yet.
Producers must decide if they want to take advantage of the market by pricing some 2012 wheat now. Producers must also decide if they want to hold out for the higher prices that the odds are against.