The market has digested a lot of information lately and wheat prices continue to trade in a narrow price range. Nearly all the information indicates that wheat prices may struggle during the 2005/06 wheat marketing year.
Current market prices in central Oklahoma and the Texas panhandle are about $3.20 and the Texas gulf price is $4.03. The corresponding KCBT March contract price is $3.34 and the KCBT July wheat contract price is $3.10. Wheat may be forward contracted for 2005 harvest delivery in central Oklahoma and the Texas panhandle for about $2.75.
United States winter wheat planted acres are predicted to be 4 percent less than last year. Hard red winter wheat planted acres are predicted to be one percent less and soft red winter wheat acres are predicted to be 19 percent less than last year. Production is expected to be slightly less than last year because lower plantings are expected to be partially offset by better crop conditions.
Canadian producers are expected to plant 3.1 percent more wheat than in 2005, and Chinese wheat plantings are expected to increase 4.5 percent. To promote increased wheat production, Chinese officials raised wheat prices. Wheat crop conditions in China are reported to be better than at this time last year.
From 1997 to 2003, Chinese wheat production declined from 4.53 billion bushels to 3.18 billion bushels. China’s 2004 wheat production of 3.31 billion bushels was essentially the first production increase since 1997. Increased planted acres and better crop conditions imply higher production in 2005 than last year.
The Australia Wheat Board’s projects that the Australian Prime Hard wheat price for the 2005/06 marketing year will be about $3.67 per bushel compared to about $4.10 for 2004/05 harvested wheat. The AWB suggests that larger world wheat production and stocks and little expected change in world wheat demand will result in lower world wheat prices.
Argentina’s 2004/05 marketing year exports are 87 percent higher than at this same time last year. Argentina is reported to be exporting wheat for about $2.95 per bushel FOB compared to $4.03 for U.S. hard red winter wheat at the Texas gulf. The USDA predicts that Argentina’s 2004/05 marketing-year wheat exports will be 11 percent higher than last year.
Wheat production in Eastern Europe and the Former Soviet Union countries are expected to be about the same as last year. Current production estimates indicated that U.S. and world production may be slightly less than last year.
A factor that has and will impact wheat prices is corn. U.S. corn stocks are the highest since 1992. Also, Asian Soybean Rust may result in soybean acres being planted to corn. Relatively low corn prices have a negative impact on wheat prices.
Potential changes in the government wheat program that are being discussed in Washington D.C., and the media should not impact 2005 wheat prices. First is that no one knows exactly what changes will be implemented and second, any changes will not be implemented until the 2006 wheat crop.
One bit of positive news is that the above negative price factors are factored into wheat prices. Relative to the $2.75 now being offered for 2005 harvested wheat, there is more upside price potential than downside risk.
The current harvest price offer is the same as the $2.75 average government loan. Thus, lower prices will be offset by larger loan deficiency payments. There is little reason to consider pricing 2005 harvested-wheat. Watch the harvest price relative to the expected 2005/06 marketing-year average price prediction. The marketing-year average price will provide an indication of whether to sell wheat at harvest or to store it.