Since prices broke out of the five-month sideways pattern on December 1l, KCBT March wheat contract prices have declined about 80 cents. At this writing, the Kansas City Board of Trade March contract price is $8.15. The KCBT March contract price has support at about $8 and resistance at about $8.50.

Prices may have been driven lower by fund traders liquidating long (bought) wheat contract positions. The fund sales have taken place with little change in the U.S. and world wheat supply and demand situations. Over the last month, fund investments (number of bought contracts) in grain commodities have declined significantly.

After the December 11 USDA World Agricultural Supply and Demand Report (WASDE) was released, fund traders may have realized that adequate supplies of wheat were available relative to demand and that U.S. wheat prices were too high. Until late November, U.S. hard red winter (HRW) wheat was above the world price.

Wheat exports support this scenario. In the December WASDE, the USDA lowered projected 2012/13 marketing year wheat exports from 1.1 billion bushels to 1.05 billion bushels, the same as 2011/12 wheat exports.

The latest USDA wheat export report indicates that total U.S. wheat exports are about four percent less than last year. Hard red winter wheat exports are five percent less than last year. Current USDA projections are for HRW wheat exports to be about 20 percent higher than last year. Lower wheat prices may result in an increase in HRW wheat export sales.

A small survey of Texas and Oklahoma elevators indicates that about 75 percent of the 2012 wheat crop has been sold. This situation implies that sufficient wheat may be unsold to meet future demand. The caveat is that the wheat may be owned by producers who have the financial capacity to hold out for higher prices.

An indication of this possibility is that after wheat prices broke out of the KCBT March contract sideways price pattern ($8.80), the KCBT March contract price fell about 80 cents. Oklahoma and Texas elevator cash prices, depending on location, only fell 60 cents to 65 cents. To buy wheat to meet demand, grain buyers had to raise the basis 15 cents to 20 cents.

Now that U.S. wheat prices are competitive in the world market, the condition of the 2013 U.S. wheat crop may play a larger role in wheat prices. Also, current wheat prices have little meaning to most wheat producers. Most producers are concerned with the potential June 2013 wheat price.

At this writing, the KCBT July wheat contract price ($8.28) is 13 cents higher than the March contract price ($8.15). Oklahoma and Texan Panhandle elevators are offering between $7.78 and $7.88 for harvest delivered wheat. The weather will determine if the June price is above or below these prices.

In the January USDA Crop Bulletin, 61 percent of Oklahoma’s wheat crop was rated Poor to Very Poor while 11 percent was rated Good. The Very Good category contained zero percent. No USDA report for Texas wheat was given, but private reports indicate that Texas wheat may be in about the same condition as Oklahoma's wheat crop.

Kansas wheat is in slightly better condition with 31 percent Poor to Very Poor and 33 percent Good. Only one percent of Kansas’ wheat was rated Excellent.

All that can be said about weather is that the 90-day forecast is for below average moisture in the Texas Panhandle, western Oklahoma and western Kansas. Given that the wheat crop will probably come out of dormancy in dry conditions, the odds support well below average wheat production with an above average price.