The 30-day forecast for Oklahoma and the Texas Panhandle is for average temperature and precipitation, which has led to lower prices. The 90-day forecast is for above average temperatures and below average precipitation, which could lead to higher prices.
In Oklahoma and the Texas Panhandle, cash wheat prices have declined from about $9 on July 20, 2012, to about $7.10 at this writing. Corn prices, which peaked on July 20 at about $8.85, have fallen to about $7.59. The wheat price decline is $1.90 compared to the corn price decline of $1.26.
During the 2012/13 wheat marketing year (June 1 through May 31), wheat stocks have been more than adequate. During May and June 2012, wheat prices increased mostly because corn prices increased. Corn prices increased because a drought resulted in 2012 U.S. corn production of 10.8 billion bushels when market analysts had predicted production over 14 billion bushels. About 13 billion bushels of corn are needed to meet demand.
Tight corn stocks resulted in corn prices increasing from $5.90 on May 31, 2012, to $8.85 on July 20, 2012. The market recognized that, even though an adequate supply of wheat was available to meet the 2012/13 marketing year demand, the drought could reduce future, 2013, wheat production.
Below average 2013 wheat production could result in a shortage of milling quality wheat during the 2013/14 wheat marketing year. Thus, the market bid up wheat prices to keep wheat from being used as livestock feed and to guarantee that wheat would be available for 2013/14 marketing year demand.
The futures market, with its deferred contracts, allows the market to allocate wheat (or any other traded commodity) over time. The weather’s potential impact on production is a major determinant of deferred prices across crop years.
At this writing, the market is expecting 2013 U.S. corn production to be above 14 billion bushels. Weather permitting, corn ending stocks for the 2013/14 marketing year are expected to increase from 600 million bushels to over 2.0 billion bushels. During the 2013/14 marketing year, corn prices are expected to average less than $5 compared to $7.20.
Lower corn prices are indicated by the Chicago Board of Trade May corn contract at $6.94 and the December contract at $5.45. December corn prices are projected to be $1.49 less than May corn prices.
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The Kansas City Board of Trade May wheat contract price is $7.31 compared to a December contract price of $7.63. December wheat prices are projected to be 32 cents higher than May wheat prices.
The above price relationships, declining corn prices, and increasing wheat prices are dependent on good growing weather for corn and poor growing conditions for hard red winter wheat. Poor wheat growing conditions existed from last August through early February.
Since early February, temperature and moisture have been favorable for wheat production. But, the forecast is for the weather to deteriorate in April and May. If the weather results in poor growing conditions, wheat prices may gain recent losses and may remain relatively high. If the weather continues favorable to wheat production, wheat prices may follow corn prices down.
Given U.S. wheat ending stocks at 716 million bushels and current HRW wheat conditions, the Oklahoma/Texas Panhandle June harvest wheat price could be anywhere between $5.50 and $8. At this writing, the market is offering about $6.85.
The five-year average Oklahoma/Texas Panhandle June harvest price is about $6.50. Producers may want to forward contract or hedge 10 percent to 15 percent of expected production. This action will not provide much income protection. But, it may make producers feel better if the weather forecast is in error about the 90-day forecast.