There is an 80 percent chance that wheat prices have peaked for the 2006/07 wheat marketing-year. Central Oklahoma and Texas Panhandle cash prices peaked on May 22 at about $4.88. At this writing, the cash price is about $4.35. For prices to recover, problems will have to develop with the foreign wheat crop and that does not seem likely.
The KCBT Sept wheat contract price peaked on May 22 at $5.23½; at this writing, the September contract is about $4.71. The uptrend that was started last December was broken. The downtrend was established on June 14 and started on May 23.
Critical September contract price levels are $4.40, $4.60, $4.80 and $5. The downtrend was established when the September contract price traded below $4.80 for two consecutive days. The current September contract price target is $4.60.
For the downtrend to continue, the September contract price must close below $4.60 two consecutive days. To break the downtrend, the September contract price must close above $4.80 two consecutive days.
In USDA’s June Wheat Supply and Demand Report, the 2006/07 wheat marketing year average price was projected to be between $3.60 and $4.20 with a mid-point of $3.90. Wheat ending stocks were projected to be 416 million bushels compared to a five-year average of 580 million bushels. World wheat ending stocks were projected to be 4.7 billion bushels compared to a five-year average of 5.8 billion bushels.
For the last three wheat marketing-years, U.S. wheat ending stocks have been about 540 million bushels. For these three years, the average annual wheat price has been about $3.40.
For the 1996/97 wheat marketing-year, U.S. wheat ending stocks were 444 million bushels and the U.S. average price was $4.30. World wheat ending-stocks were 6.1 billion bushels for the 1996/97 marketing year.
To put this into perspective for the 1996/97 wheat-marketing year, the five-year average U.S. wheat ending-stocks were 490 million bushels and the world’s average was 6.1 billion bushels. Thus in 1996/97, U.S. wheat ending-stocks were 54 million bushels below average and world wheat ending-stocks were on average.
For the 2006/07 wheat-marketing year, U.S. wheat ending-stocks are projected to be 164 million bushels below average and world ending stocks are projected to be 1.13 billion bushels below average.
This implies that wheat stocks are projected to be tighter than during the 1996/97 wheat marketing year. Another indicator, the U.S. stocks-to-use ratio (ending stocks divided by wheat use), is projected to be about the same as it was in 1996/97 and the world wheat stocks-to-use ratio is projected to be the lowest since my records began in 1960.
The U.S. and world ending-stocks and the stock-to-use ratios indicate that the 2006/07 wheat marketing-year average price should be at least as high as the 1996/97 wheat price of $4.30 and possibly higher.
Two questions arise: Will wheat prices recover and, if not, how low will prices go? The wheat price seasonal trend is for prices to decline after harvest and into August, and then increase into December and possibly January.
If central Oklahoma and Texas Panhandle prices decline to the $4 level, expect prices to follow the normal seasonal trend – bottom in August and peak in the December/January time period.
Watch foreign wheat production which is projected to be 20.2 billion bushels compared to 20.7 last year and a five-year average of 19.6 billion bushels.
Argentina is projected to produce 525 million bushels compared to 459 million bushels last year, and a five-year average of 520 million bushels. Australia is projected to produce 882 million bushels compared to 900 bushels last year, and a five-year average of 791 million bushels.
You may have missed the peak price, but few farmers have gone broke selling wheat for over $4.