The International Grains Council projects 2004 calendar year world wheat production to be 22.1 billion bushels compared to 20.3 in 2003. Over the last five years, world wheat production averaged 21.1 billion bushels.
European wheat production is projected to increase 23 percent and former Soviet Union countries' wheat production is projected to increase 34 percent. Argentina's production is projected to increase 15 percent. All these countries are competitive in the export market.
Lower production is projected in the U.S., Australia, Kazakhstan and China. However, the reduction is not sufficient to offset increased production in the other countries.
During the last five years, world wheat consumption has been higher than production. World wheat consumption averaged 21.7 billion bushels compared to a 21.1 billion bushel average for production. World wheat ending stocks have declined from 7.6 billion bushels in 1999 to 4.7 billion bushels this year.
If 2004 world wheat production is 22.1 billion bushels and consumption is 21.7, world wheat ending stocks will increase from 4.7 billion bushels to 5.1 billion bushels.
Reports indicate that current U.S. wheat conditions are equal to or slightly better than last year. With three percent less acres planted, U.S. winter wheat production is projected to be 1.5 billion bushels compared to last year's 1.6 billion bushels.
Critical months for the U.S. winter wheat crop are March, April and May. Abnormally dry to severe drought conditions persist from the Texas panhandle through western and northern Kansas and most of the northwestern section of the winter wheat belt. Topsoil moisture in Oklahoma is 44 percent short to very short. Kansas's soil moisture conditions are rated 55 percent short to very short.
North central Oklahoma and south central Kansas's moisture conditions are rated adequate. Moisture conditions will become more critical when wheat comes out of dormancy in late February and early March.
Wheat prices have been trading in a 40-cent sideways pattern since late October. The Kansas City Board of Trade (KCBT) March wheat contract traded in a price range between $3.70 and $4.10, mostly in the $3.80 to $4 range.
Since last October, the KCBT July wheat contract has traded in a price pattern between $3.50 and $4. More recently, July contract prices have remained between $3.80 and $4.
These price ranges are important indicators for predicting wheat price movements. If the KCBT July price closes two consecutive days below $3.80 then the price will be expected to decline to $3.50. Closes below $3.50 will be extremely bad news.
Merchandisers are currently using the KCBT March contract to determine wheat prices. During the last week in February, wheat merchandisers will switch to the KCBT May contract. The price support and resistant levels are about the same with the May contract as with the March contract.
Elevators in Oklahoma and Texas are offering between a minus 30 to minus 35-cent basis KCBT July for harvest delivered wheat. At this writing, the July contract price is about $3.80. This implies that with the knowledge of a potential eight percent larger world wheat crop, elevators are still offering to forward contract wheat for $3.45 to $3.50 ($3.80 - $0.35 basis).
Weather will determine the size of the 2004 U.S. and world wheat crops and the size of the crops will partially determine prices. The goods news is that projections are for a larger crop than last year and the market is still offering nearly $3.50 for harvest delivered wheat.