In three days, the Kansas City Board of Trade December contract price went from $3.30 to $3.53. Producers who sold wheat Wednesday afternoon got 23 cents per bushel more than producers who sold wheat last Monday morning.

The 2003/04 wheat-marketing year has been a roller coaster. The KCBT Dec wheat contract price bottomed out at $3.13 (July 8). By Aug. 18, prices had increased to $3.97. Then prices fell to $3.44 (Sept. 19), wallowed around until Oct. 22 and now have started back up. Market reports indicate that the “funds” bought wheat today due to “technical” indicators.

The Kansas City Board of Trade December contract is trading in 25-cent increments. The current price range is $3.40 on the bottom and $3.65 on the top. The next target price for the December contract is $3.65. If prices close above $3.65 for two consecutive days, the next target is about $3.90.

Tight stocks

Wheat prices are volatile because of relatively tight wheat stocks. United States wheat ending stocks are projected to be 633 million bushels compared to a five-year average of 810 million bushels.

More importantly, world wheat ending stocks are projected to be 4.78 billion bushels compared to a five-year average of 7.17 billion bushels. World wheat ending stocks have been declining since the 1998/99 wheat-marketing year. This year's world ending stocks are expected to be 22 percent of annual use. The lowest since 1972. Put another way. On May 31, 2004, the world's wheat stocks are expected to be about 81 days of the world's consumption.

Relatively tight wheat stocks make the market sensitive to changes in world wheat needs. The wheat harvest is starting in the southern hemisphere. Australia's wheat harvest is in progress and Argentina's harvest is just beginning. Wheat merchandisers are watching these harvests.

Australia is projected to produce 882 million bushels of wheat compared to a five-year average of 754 million bushels. Argentina wheat production is projected to be 496 million bushels. The market has factored these projections into the current price. Deviations from these estimates will cause the wheat price to change.

South Africa's National Crop Estimates Committee lowered South Africa's projected wheat production to 57.5 million bushels compared to 85 million bushels last year. While this is only a 30-million-bushel reduction, it implies an additional 30 million bushels bought on the export market and lower world wheat stocks.

United States wheat exports are about 17 percent above last year's level. 2003/04 marketing year exports are projected to be 1.05 billion bushels compared to 854 million bushels last year and a five-year average of one billion bushels.

Wheat stocks are sufficiently tight that the market will start reacting to 2004 U.S. wheat production potential. Moisture conditions are good in central and eastern U.S. However, there are some dry areas in the western wheat belt.

No one knows how much wheat will be produced in the southern hemisphere and will not know until the harvest is nearly complete. With relatively tight wheat stocks, wheat prices will continue to make relatively large swings.

Turn to 2004

After the southern wheat harvest is complete, the market will closely watch the 2004 wheat crop progress. Current 2004 world wheat expectations are for higher production than 2004 consumption. The 2004 wheat prices are expected to be lower than 2003 prices.

One way to manage wheat marketing in the current market is to sell wheat one-fourth or one-fifth of the wheat at a time. Then if prices continue to increase, you have wheat to sell and if prices fall, you sold some at the higher price.