Between September 20 and November 18, the KCBT March wheat contract price went from $6.97 to $7.69 and back down to $6.97. The KCBT March contract support price is $6.94. Closes below $6.94 would indicate a potential target price or $6.64. The odds may be a little better than 50/50 that the price doesn’t go below $6.94.
The 72-cent price increase may have been the result of relatively tight U.S. wheat stocks and potential problems with Australia’s wheat crop.
In the September 12 WASDE (World Agricultural Supply and Demand Estimates) report, hard red winter (HRW) 2013/14 marketing year (June 1 through May 31) exports were projected to be 415 million bushels. Between June 1 and September 19, 238 million bushels (57 percent) of the projected exports had been sold. Hard red winter wheat export sales were 33 percent higher than the same period last year.
In the September WASDE, HRW wheat ending stocks were projected to be 197 million bushels. For the 2012/13 marketing year, HRW wheat ending stocks were 343 million bushels and the 5-year average was 337 million bushels.
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Hard red winter wheat ending stocks were relatively tight. Prices needed to increase to protect the remaining U.S. wheat not sold.
In mid-September, major Australian wheat areas experienced freezing temperatures. Some market analysts lowered Australia’s expected wheat production. Less Australian hard white wheat means less export competition for U.S. HRW.
On October 23, KCBT wheat futures contract price peaked with the March contract at $7.69. Between September 20 and October 23, only 23 million bushels of HRW wheat was sold for export compared to average monthly sales of 79 million bushels for June through September.
Also, Australia’s wheat harvest started and reports indicated that wheat yields were higher than expected. Australia should have more wheat available for export than predicted in September.
As the wheat supply and demand situation reverted back to September’s expectations, prices fell back to September’s price levels.
Another factor that affected wheat prices was production potential of the 2014 hard red winter wheat crop. In September, drought conditions remained in much of the HRW wheat area and 2014 HRW wheat production was at risk. By late October, conditions had dramatically improved and production potential was significantly higher.
The latest USDA crop condition report showed all U.S. winter wheat rated at 63 percent good to excellent. The 5-year average is 52 percent and the rating last year was in the low 30s.
The U.S. HRW wheat crop is going into dormancy in relatively good condition. Expectations are for at least average production of 951 million bushels and possibly 1.0 billion bushels.
Locking forward, Argentina and Australia’s wheat harvest will continue through most of December. There could be a surprise with production or quality but it’s not likely. The wheat supply for the 2013/14 marketing year is essentially fixed.
Consequently, demand is the major price factor and exports will be the major determinant of price. To meet USDA’s projection of HRW exports of 415 million bushels, HRW export sales need to average about 25 million bushels per month or 5.5 million bushels per week.
Seventy-two cents up in five weeks was a golden opportunity. Seventy-two cents down in 19 days took it away.
The KCBT March contract appears to be building a bottom near $6.94. March contract prices lower than $6.94 will imply a price target of about $6.59. If the March contract stays above $6.94, the target price will be $7.31.