In the July USDA Wheat Supply and Use estimates, the USDA estimated that the 2005/06 wheat marketing year average annual price would be between $2.60 and $3.10. The mid-point is $2.85 per bushel. The 2005/06 wheat marketing year is June 1 through May 31.

From June 1 through July 21, Oklahoma and Texas hard red winter wheat prices have averaged about $3.10. During the last five years, U.S. wheat prices have average about 10 cents higher than Oklahoma/Texas prices. This implies that U.S. June and July wheat prices may average about $3.20 per bushel. During the first two weeks of June 2005, the Oklahoma/Texas price averaged about $3 per bushel, while U.S. wheat prices averaged $3.17.

During the last four years, about one-third of U.S. wheat production was sold in June and July. If one-third of the wheat is sold for an average price of $3.20, for the annual price to average $2.85, the final two-thirds must be sold for an average price of $2.68. The longer wheat prices remain above $2.85, the lower wheat prices must go to generate the $2.85 average.

For wheat prices to average USDA's upper price projection, $3.10, the remaining two-thirds of U.S. wheat production must be sold for an average price of $3.05. If the 2005/06 average annual U.S. wheat price is between $2.60 and $3.10, then wheat prices must decline.

During the last four years, 58 percent of the wheat has been sold by the end of October and 72 percent of the wheat has been sold by Jan. 1. If wheat prices are going to fall, the decline should start in the near future.

Key price levels, to watch for the Kansas City Board of Trade September wheat contract, are $3.15, $3.35 and $3.55. At this writing, the KCBT September contract is trading at the bottom of the range $3.35 to $3.55. Two consecutive closes below $3.35 will imply that the September contract price will decline to $3.15.

On the KCBT December wheat contract, the key price levels are $3.25, $3.45 and $3.65. It will take two consecutive closes below $3.45 to establish a downtrend. At this writing, the KCBT December contract price is $3.47, which is down from $3.64 five trading days ago.

Wheat prices appear to be following corn and soybean prices. When it is dry in the Midwest, prices go up and when it rains, prices go down. There may be other reasons that hard red winter (HRW) wheat prices have remained higher than expected.

Hard red winter wheat production is projected to be 924 million bushels compared to 856 million bushels last year. However, HRW export commitments are 40 percent higher and total export sales are 3 percent higher than last year. Also wheat production in Texas, Oklahoma and Kansas were all lower than expected.

World wheat production is projected to be slightly less than last year (22.5 billion bushels compared to 23 billion bushels). World wheat ending stocks are projected to decline from 5.47 billion bushels to 5.27 billion bushels. Slightly tighter world stocks may result in slightly higher U.S. exports than is currently predicted.

The big negative price factor is that U.S. wheat ending stocks are projected to increase from 619 million bushels to 700 million bushels. For the last two years, U.S. wheat ending stocks have been about 540 million bushels and the average annual price was $3.40 both years. Higher ending stocks imply lower prices.

The five-year average U.S. wheat ending stocks is 650 million bushels and the five-year average is $3.15. Slightly above U.S. ending stocks imply a slightly below average prices. The caveat is below average world wheat stocks. United States stocks may trump world stocks.

United States wheat production is projected to be 9.8 percent of world wheat production. Thus, the real key to U.S. wheat price is foreign wheat production and U.S wheat exports. The marketing year price trend is normally set in late August and early September.

Watch KCBT December wheat contract prices and compare them to $3.25 and $3.45. KCBT December prices below $3.25 will imply that the marketing year high price has been set and prices above $3.45 will imply that wheat prices will continue to move sideways or increase.