During the last week, cash wheat prices have fallen about 41 cents and harvest forward contract prices have declined about 47 cents. The price declines are due mostly to expectations of and then actual rainfall over much of the hard red-winter wheat area. The rain was beneficial. However, the rain may have been too little, too late.
Before the rain, the wheat crop had been essentially written off in southern Oklahoma and much of the Texas Panhandle. Wheat conditions improved as you progressed north into north central Oklahoma and southern Kansas. Western Oklahoma and Kansas wheat was in poor condition.
Agronomists reported that the wheat had established tillers and therefore the number of heads. This weekend's rain will not change the number of tillers or heads. Timely rain and cool temperatures are required to fill the heads.
Green bugs and the Hessian fly have also been reducing potential wheat yields. Green bugs are a problem over much of Oklahoma and parts of the Texas Panhandle and the Hessian fly is partially bad in east-north central Oklahoma (Grant and Kay counties). The fly is predicted to dramatically reduce wheat production.
Several analysts have set maximum Oklahoma wheat production at 100 million bushels compared to a five-year average of 140 million bushels. Some elevator managers have compared the 2006 wheat crop to the 2002 and the 1996 wheat crops.
In 1996, Oklahoma wheat production was 93.1 million bushels and the 2002 wheat production was 104 million bushels. A factor to note is that the average yield in 1996 was 19 bushels per acre and was 28 bushels per acre in 2002.
For the 2006 wheat crop, 5.8 million acres were planted in both Oklahoma and Texas. In 1996, wheat planted acres were seven million acres in Oklahoma and 6 million acres in Texas. In 2002, Oklahoma wheat planted acres were 6.1 million acres and 6.4 million acres in Texas.
Less acres and like potential yields indicate that Oklahoma and Texas wheat production together could be 50 million bushels less than last year.
Both U.S. and world wheat stocks are tight. United States wheat ending stocks are projected to be 542 million bushels compared to a five-year average of 579 million bushels. Ending stocks of about 542 million bushels have resulted in an average annual price of about $3.40.
If U.S. wheat ending stocks decline 100 million bushels to 440 million, the average annual price can be expected to increase to $4.30. Given the current condition of the hard red winter wheat crop, this is likely.
A problem may be declining wheat export demand. Recently, U.S. wheat was mostly priced out of the world market. Between June 1 and Dec. 23, 2005, U.S. wheat export sales averaged 25.2 million bushels per week. Between Jan. 1 and March 9, 2006, weekly export sales averaged 12.4 million bushels per week. The decline may be due to the U.S. wheat price compared to the world wheat price.
The point is that if U.S. wheat is priced out of the market by a relatively low U.S. wheat crop and a relatively large foreign wheat crop, ending stocks may not decline during the 2006/07 wheat marketing year. Lower production could be offset by reduced export wheat shipments.
A benchmark to watch is the KCBT July wheat contract price. Important price levels are $3.80, $4, $4.25 and $4.50. At this writing, the KCBT July wheat price is $4.15. It will take two consecutive closes below $4 for the downtrend to continue; it will take two consecutive closes above $4.50 to establish an uptrend.
The rain will definitely help the 2006 wheat crop in Texas and Oklahoma. In southern Oklahoma and much of the Texas Panhandle, the rain was too little too late.
For the most of the rest of the hard red winter wheat area, it will take timely rains and cool temperatures to produce a below-average crop.