The KCBT Dec wheat contract has also established a ceiling at $4.88. If the KCBT Dec price hits $4.88, watch the volume (number of contracts traded). If daily volume is less than 23,000, the rally is weak and prices are trying to make a top. Volume of 23,000 or more will imply that the rally still has strength and will be expected to increase to $5.

Weather will determine whether wheat prices continue the upward price trend. The market is watching the Argentine and Australian wheat crops. Argentina’s wheat producers planted about four percent less wheat than last year. Reports indicate that Argentina’s wheat production is expected to be 514 million bushels compared to 570 million bushels last year and a five-year average of 554 million bushels.

Three major wheat areas in Australia have been experiencing a drought. Recent rains in these areas have helped production expectations. Australia’s wheat production is predicted to be 551 million bushels compared to 881 million bushels last year and a five-year average of 833 million bushels.

When evaluating Argentina and Australia’s wheat production, remember that the market has a tendency to underestimate short crops and overestimate big crops. Both Argentina and Australia (especially Australia) are expected to produce short crops. A negative U.S. price impact would result from larger than currently expected production.

United States wheat stocks are the tightest since 1995.United States wheat ending stocks are projected to be 407 million bushels compared to a 10-year average of 670 million bushels.

Foreign wheat stocks are the tightest since 1988 at 4.57 billion bushels compared to a 10-year average of 5.4 billion bushels.

World-ending stocks are the tightest since 1982 and are projected to be 5 billion bushels compared to 6.3 billion bushels.

“How fast can wheat stocks increase and prices decline? ”For ending stocks to reach average, U.S. production must be 263 million bushels (407 – 670) greater than consumption and foreign wheat production must be 1.73 billion bushels above consumption.

The five-year average annual U.S. wheat consumption is 2.34 billion bushels. Five-year average foreign consumption is 20.3 and the five-year average world consumption is 21.6 billion bushels.

For production to result in average wheat-ending stocks in the 2003/04 wheat marketing year, 2003 U.S. production would have to be nearly 2.6 billion bushels (11% above average) and world production would have to be 22.9 billion bushels. Record world production was 22.4 billion bushels in 1997.

It appears that wheat producers are planting “fencerow to fencerow” and applying fertilizer. Sparks Company projected that U.S wheat acres will rise 1.6 million acres in 2003.Winter wheat acres are projected to increase 2.3 percent and spring wheat increase 3.8 percent.

Currently, the KCBT July 2003 wheat contract price is $3.78.The harvest basis in central Oklahoma and the Texas panhandle averages about a minus 30 cents. This implies that the market is offering about $3.48 per bushel for 2003-harvested wheat. Some producers are wondering if they should take advantage of this price.

A below average U.S and foreign 2003 wheat crop could cause U.S. wheat prices to increase to $7.Above average wheat production could cause KCBT wheat prices to fall to $3.25 by September 2003.

Wheat prices over the next eight months are anybody’s guess. One thing for certain is that it will be a weather market with big moves both up and down. The way to manage volatile markets is to sell small lots at a time.

Kim Anderson is an Extension Agricultural Economist with Oklahoma State University.