At this writing, the Kansas City Board of Trade July wheat contract price is $4.90. Wheat may be contracted for harvest delivery in much of Oklahoma and the Texas Panhandle for between 34 and 44 cents less than the KCBT July contract price. Using a minus 40-cent basis, wheat may be forward contracted for $4.50 per bushel.

On the day of this writing, the KCBT July wheat contract was down eight cents. Since mid-December, the July contract price has been in a sideways price channel between $4.90 and $5.10. If the July contract price closes two consecutive days below $4.90, the next support price is $4.70.

Wheat and corn stocks are tight. United States wheat ending stocks are projected to be 472 million bushels compared to a five-year average of 590 million bushels. United States wheat ending stocks have not been below 472 million bushels since the 1996/97 wheat marketing year.

World wheat ending stocks are projected to be 4.4 billion bushels and have not been this low since the 1981/82 wheat marketing year. The five-year average of world wheat ending stocks is 5.9 billion bushels.

Both U.S. and world wheat planted acres are projected to be higher than last year. Reports also indicate that the wheat crops are in better condition than last year. 2007/08 marketing year production is expected to be sufficient to increase stocks.

Price keys

Between now and June, keys to wheat prices will be the conditions of the U.S. winter wheat crop, the number of acres planted to corn and the corn planting conditions.

The production benchmark for U.S. winter wheat is 1.4 billion bushels. The benchmark for hard red winter wheat is 850 million bushels. Above-average production will imply lower prices and below average production higher prices.

Wheat will start coming out of dormancy in early March. At that time analysts will estimate the amount of freeze damage and will evaluate growing conditions. In Oklahoma and Texas, the critical growing time period is between mid-April and mid-May.

After about April 1, temperatures need to stay above freezing. Between April 15 and May 15, the optimum weather conditions would include timely rain and temperatures below 80 degrees. At the worst, temperatures need to stay below 90 degrees. Deviations from the optimum conditions will result in lower yields and production.

On March 30, the USDA will release the prospective plantings report, which will provide the first estimate of corn planted acres. Some analysts estimate that to meet demand, 2007 corn production must be over 12 billion bushels. The record corn crop was 11.8 billion bushels in 2004, up from 73.6 million harvested acres. In 2004, 80.9 million acres were planted to corn.

The five-year average corn yield is 146 bushels per acre from an average of 79.7 million planted acres. The five-year average, percent harvested acres, is 90.2 percent.

Using an average yield of 146 bushels and a percent harvested acres of 90.2, it will take 91.1 million planted acres and about 82.2 million harvested acres of corn to produce 12 billion bushels. In 2006, 78.3 million acres of corn were planted. Planting 91.1 million acres of corn will require nearly perfect planting conditions.

There are a lot of assumptions in the above analysis. The major point is that wheat and corn prices are expected to remain relatively high. There is about 50 cents downside price risk in wheat and about a $1.50 upside potential.

If you cannot afford to take that risk of $4.10 per bushel for your wheat, forward contract some of it. If you can afford the risk, wait until harvest.