The Minneapolis Grain Exchange (MX) March wheat contract (spring wheat) price peaked at $13.50. The Chicago Board of Trade March soybean contract peaked at $13.44. On the day the MX March contract price reached $13.50, the CBT March soybean contract price was $12.77. Spring wheat prices were above soybean prices.
Current grain price relationships are an anomaly. Soybeans, corn and spring wheat are bidding for cropland. Corn and soybean supplies are adequate. Wheat supplies are at historical lows. Wheat prices are being influenced by a supply shortage as well as competing for land.
Kansas City Board of Trade (KCBT) March wheat contract (hard red winter - HRW) prices peaked at $10.33. The July wheat contract price peaked at $9.87. March contract prices reflect 2007 harvested wheat prices and July contract prices reflect potential 2008 wheat harvested prices.
The price spread between the KCBT March contract and the July contract has narrowed. In early December, the March contract price was $1.06 higher than the July wheat contract price ($8.85 vs. $7.79). At this writing, the spread has narrowed to $0.2 ($9.67 vs. $9.45). The narrow spread is that result of higher July wheat contract prices relative to March prices.
Hard red winter wheat (KCBT contact) prices are at historical highs because of a supply shortage, because HRW wheat planted acres were less than expected and because of relatively poor planting and growing conditions since planting. It appears that the market believes that 2008 HRW wheat production may be below average.
The question becomes, “How long will these relatively high prices persist?” The answer is until weather supports above average wheat production and when ending stocks increase. It is still possible for HRW wheat and all U.S. wheat ending stocks to increase in the 2008-2009 marketing year. But, the odds of a significant increase in U.S. wheat stocks are relatively low.
Reports indicate that foreign wheat producers have planted 6 percent to 8 percent more wheat than during the 2006-2007 marketing year. Planting and growing conditions for foreign wheat crops have been relatively good. If good growing conditions continue, foreign wheat production may be above average and world wheat ending stocks may increase.
Weather is the determining production and the determining price factor. Without last year's poor harvest weather in most wheat growing countries, current wheat stocks would be significantly higher and wheat prices would probably be between $5 and $6.
Given current record low wheat stocks-to-use ratios (wheat in storage divided by total use), wheat prices should remain in the $7.50 to $9 range during June and July. If foreign wheat production appears to be below average, $10 wheat is possible during harvest.
If foreign wheat production appears to be above average, wheat prices should hold relatively strong through mid-July and then start a downtrend into August and September. After September, the condition of the Argentine and Australian wheat crops will determine the price trend.
Prices are variable and a $2 price swing is not unlikely. Trying to make decisions while wheat prices are changing 20 to 30 cents per day is nearly impossible.
What producers need to do is to develop mechanical marketing strategies that take the emotion out of decisions. The plan may be to sell some wheat now, some at harvest and then the rest during the fall and winter.
Given the price swings, it probably is not a good strategy to sell all the wheat at one time. However with a little luck, a one-shot deal may end up the best. Besides, who can go wrong with $7 to $10 wheat?