On December 12, wheat prices broke out the bottom side of a five-month sideways trading pattern. Using KCBT March Wheat contract prices, the price spread from the top ($9.62 on Aug. 10, Sept. 14, and Nov 9.) to the bottom ($8.80) was 82 cents. At this writing, wheat prices are $1.47 below the $9.62 top and 64 cents from the bottom price.
It is difficult for some hard red winter (HRW) wheat produces to understand the price decline. Drought maps show most of the HRW wheat area to be in severe to extreme (the worst two classifications) drought conditions. In Texas and Oklahoma, a historically large percent of the 2013 winter wheat crop is in poor to very poor condition. The odds favor below average percent harvested acres and wheat yields in 2013.
Prices broke out of the bottom side of the sideways pattern the day the USDA released the December WASDE (World Agricultural Supply and Demand Estimates) reports. The reports showed that both U.S. and world 2012/13 marketing-year wheat stocks are projected to be near the five-year averages. Even with a below average U.S. HRW wheat crop, the market will enter the 2013/14 marketing-year with an adequate supply of wheat.
Fund selling is another reason wheat prices fell. Fund managers have been offsetting long (bought) positions in both the wheat and corn markets. With relatively low holiday trading volume, prices fell due to lack of buyers.
Uncertainty about Congress and the president solving the deficit and tax situation (fiscal cliff) has added risk to the commodity and stock markets. Some traders are liquidating their market positions and may stay on the sidelines until the situation is solved. Another reason for the $1.47 price decline may be that corn export demand has been relatively low—resulting in potentially higher ending stocks. Also, some analysts are projecting that 2013/14 corn ending stocks will be 1.6 billion bushels or higher. Corn ending stocks for the 2012/13 marketing year are projected to be 647 million bushels.
In November, when KCBT March wheat contract prices were trading near the top of the sideways pattern, some producers were asking about $10 plus wheat prices. Hope was based on poor 2013 wheat stands, drought conditions, tight corn stocks, and wishful thinking. The $1.47 price decline may dash the hopes of $10 wheat.
Yet, wheat stands are still in poor to very poor condition; drought conditions still exist and are predicted to continue; and corn stocks will be tight at least until the 2013 corn harvest in September. If these conditions persist and 2013 wheat and corn production are below average, wheat prices might not reach $10, but could go back above $9.
For 2013 harvested wheat prices, what is happening now is just “white noise.” Common wisdom is that the wheat crop is made in March, April, and May. As the wheat crop is made (whatever the size), prices will be determined.
Winter wheat producers have planted their wheat. They have no control over weather and limited control over prices. With production, decisions must be made relative to top dress fertilizer and if poor conditions persist, declaring the crop lost, collecting crop insurance (if available) and, possibly, planting a summer crop.
With prices, producers need to evaluate production possibilities and then develop a written marketing plan. As production possibilities change, the marketing plan can be modified and implemented.
The recent $1.47 price decline is just a starting point for future prices that can’t be predicted.