The USDA released the wheat supply and demand estimates for the 2005/06 wheat (June-May) and corn (August-July) marketing years. After the estimates were released, wheat prices fell about five cents and corn prices gain about three cents.
Key estimates to watch are U.S. wheat production at 2.19 billion bushels, exports at 950 million bushels and ending stocks at 678 million bushels. Key world wheat estimates are production at 22.6 billion bushels and ending stocks at 5.42 billion bushels. The 2005/06 wheat marketing year average price is projected to be $2.80 compared to $3.39 for 2004/05.
The USDA projects 2005/06 U.S. wheat production to be 2.19 billion bushels compared to 2.16 billion bushels last year and a five-year average of 2.06 billion bushels. For the 2005/06 marketing year average price to be near $3.40, U.S. production needs to be less than 2.05 billion bushels.
Total U.S. wheat supply is projected to be 2.796 billion bushels compared to 2.775 billion bushels last year. The total wheat supply is projected to increase only 21 million bushels.
Wheat use in the U.S. is projected to decline 116 million bushels. Lower exports, 950 million bushels compared to 1.05 billion bushels during 2004/05, account for a 100 million bushel decrease in wheat use. Wheat used for feed accounts for the remaining 16 million bushels.
U.S. ending stocks
United States wheat ending stocks are projected to increase 137 million bushels to 678 million bushels. The increase in stocks is a key estimate resulting in relatively low wheat prices.
World wheat ending stocks are projected to be 5.42 billion bushels compared to 5.5 billion bushels for the 2004/05 marketing year. Projected lower world ending stocks result from lower world wheat production and higher wheat use.
World wheat production is projected to be 22.6 billion bushels compared to 23 billion bushels in 2004/05 and a five year average of 21.3 billion bushels. However, higher world wheat beginning stocks is expected to result in a 328-million-bushel increase in the world's wheat supply.
World wheat use is expected to increase 407 million bushels. Thus world wheat ending stocks are projected to decline from 5.5 billion bushels to 5.42 billion bushels.
Relatively low corn prices are expected to result in a 15 million decline in wheat used for feed. The U.S. corn supply is projected to increase from 12.8 billion bushels this year to 13.2 billion bushels during the 2005/06 corn marketing year.
The 2005/06 average annual corn price is projected to be $1.75 compared to $2.05 during 2004/05. Relatively low corn prices restrict wheat price's upside potential.
Positive estimates in the report are world wheat production (22.6 billion bushels compared to 23 billion bushels in 2004/05) and ending stocks (5.41 billion bushels compared to 5.5 billion bushels in 2004/05).
Negative estimates are U.S. wheat exports (950 million bushels compared to 1.05 in 2004/05) and higher ending stocks (678 million bushels compared to 541 million bushels in 2004/05).
It appears that cash wheat harvest prices in central Oklahoma and the Texas panhandle will be around $2.60. Currently, the market is offering about $2.80 for harvest delivered wheat.
United States wheat production is projected to be 9.6 percent of the world's wheat production. It will be late August or early September before the price trend is set for the 2005/06 wheat marketing year.
Wheat marketing strategies to consider are to sell one-third of wheat production at harvest, one-third in October and the final third in November or December. Or, consider selling all the wheat at harvest and buying “at the money” KCBT December call option contracts to replace two-thirds of the wheat.