The first time in history that Oklahoma and Texas marketing year (June 1 through May 31) wheat prices averaged above $5 was the 2007/08 marketing year. The average annual wheat price for 2007/08 was $6.22, and wheat prices averaged $6.93 during the 2008/09 wheat marketing year.
The 2009/10 wheat marketing year average price was $4.89. The 2010/11 average annual price was $5.10, and the 2011/12 wheat marketing year price is projected to be $7.10. Nineteen months ago, Oklahoma and Texas wheat prices were below $4. Wheat prices have been above $5 since early July 2010.
Between now and October 2012, a 33 percent chance exists that wheat prices will be below $5. This one-out-of-three chance is estimated by reviewing U.S. and world wheat production, stocks, and use.
At this writing, the KCBT July wheat contract price is $6.75. The harvest forward contract basis for most of Oklahoma is about minus $0.45, and the basis is about minus $0.85 for the Oklahoma and Texas Panhandles. Wheat may be forward contracted for $6.30 in Oklahoma and $5.90 in the Texas Panhandle region.
The current wheat situation is one of above average wheat stocks. United States wheat ending stocks are projected to be 870 million bushels compared to a five-year average of 734 million bushels. World wheat ending stocks are projected to be 7.72 billion bushels compared to a five-year average of 6.65 billion bushels.
World wheat ending stocks were 6.14 billion bushels for the 2008/09 marketing year when Oklahoma and Texas prices averaged $6.93. During the 2009/10 marketing year, world ending stocks were 7.43 billion bushels, and the price average was $4.89.
For 2010/11, wheat marketing world ending stocks were 7.35 billion bushels with an average price of $5.10. World wheat ending stocks for the 2011/12 marketing year are projected to be 7.72 billion bushels with an average price of $7.20.
Note that for the 2009/10 wheat marketing year, world wheat ending stocks were 7.43 billion bushels, and the Oklahoma/Texas price averaged $4.89. Comparatively, 2011/12 wheat marketing year ending stocks are projected to be only 290 million bushels higher at 7.72 billion bushels, and the projected average price, $7.20, is higher than the 2009/10 average price. It appears odd to have a $2.31 higher average price with only a 290 million bushel increase in ending stocks.
An explanation may be higher wheat demand and use. World wheat use for the 2011/12 marketing year (25.0 billion bushels) is projected to be 1.6 billion bushels higher than for the 2008/09 marketing year and 1.1 billion bushels higher than for 2009/10.
In the last five years, world wheat production has varied from 22.4 billion bushels in 2007/08 to 25.4 billion bushels in 2010/11. Weather has caused, and will continue to cause, production variability.
By contrast, consumption tends to increase over time. During the last five years, wheat use has increased every year going from 22.7 billion bushels in 2007/08 to 25 billion bushels in 2011/12. Rarely does wheat use decline much from year to year. The price impact of higher world wheat stocks may be offset by increased use.
Some analysts have projected U.S. 2012/13 wheat production to be above 2.2 billion bushels and wheat ending stocks to be above 900 million bushels. The 2012/13 world wheat production has been projected above 25 billion bushels with a slight increase in ending stocks.
Some analysts are projecting a dramatic increase in 2012 U.S. corn production. If these projections are correct, Oklahoma and Texas wheat prices have a 33 percent chance of going below $5 during the 2012/13 wheat marketing year. The most likely average annual price is $5.75.