At this writing, the Kansas City Board of Trade (KCBT) December wheat contract price is $5.05, the July '07 wheat contract price is $4.82 and the July '08 contract price is $4.73. The current central Oklahoma and Texas Panhandle cash price is $4.88. Using a minus 35-cent June basis, the market is offering $4.47 for June '07 delivered wheat and $4.38 for June '08 delivered wheat.
The market factors driving current wheat prices are Southern Hemisphere wheat production (Argentina and Australia), tight U.S. and world wheat stocks and U.S. wheat export demand. Factors driving June '07 wheat prices are the same plus U.S. winter wheat planting conditions.
Argentina's wheat harvest normally starts about the second week in November and ends about mid-January. In September, the USDA predicted Argentine wheat production to be 496 million bushels compared to 459 million bushels last year and a five-year average of 520 million bushels.
Australian wheat producers are experiencing drought conditions. The USDA's September estimate was 716 million bushels compared to the 790 million bushel projection in August. Australia's 2005 production was 900 million bushels and the five-year average is 791 million bushels.
Reports indicate the Australian Wheat Board has lowered Australian wheat production from 827 million bushels last spring to 551 million bushels. Some estimates have Australian wheat production as low as 478 million bushels. Australia's wheat harvest starts in October and runs through December.
United States wheat ending stocks are projected to be the tightest since 1996 and world ending stocks are projected to be the tightest since 1988. The question is, “Will ending stocks be above or below current expectations?” And, “What will 2007 wheat production be?”
Hard red winter wheat planted acres are expected to be slightly higher than last year. While drought conditions in Oklahoma and Texas have moderated, it is still too dry to plant wheat in many areas. Some wheat that has been planted has blown out and some has died due to moisture shortage.
Hoping for a timely and slow rain, many producers are “dusting in” the wheat. Reports also indicate that many producers are not going to place stockers on wheat pasture (it does not exist in most areas) and are concentrating on wheat production.
Rain in Illinois and Ohio are hindering the soft red winter wheat plantings. It may be early November before U.S. winter wheat plantings are clearer.
Exports demand continues to be below expectations. The USDA projects 2006/07 wheat exports to be 900 million bushels. This requires an average of about 17.3 million bushels per week. Weekly exports have averaged 15.6 million bushels and need to average about 18 million bushels per week for the remainder of the marketing year to meet USDA's export projection.
Hard red winter wheat exports for the 2006/07 marketing year are projected to be 30 percent less than last year. Current shipments are 73 percent less, have averaged 4.1 million bushels per week and need to average 6.7 million bushels per week for the remainder of the marketing year.
For wheat prices to continue the uptrend, U.S. wheat exports must increase. For export demand to increase, Australia's wheat production needs to be 550 million bushels or less and Argentina's wheat production needs to be 500 million bushels or less.
In volatile markets, it is essential to have written marketing plans and the discipline to follow them. The odds are that wheat prices will continue the uptrend and if it remains dry in Oklahoma, Texas and Kansas, the June 2007 wheat prices could be in the $6 range. Prudent producers will set price targets and will have the discipline to follow the plan.