On March 31, the USDA released planted acre estimates for U.S. wheat and row crops. Now that we have a relatively good handle on planted acres, weather, harvested acres and yields will determine total production. Production and demand will determine prices.
USDA's wheat planted acres estimates and current crop conditions support 2005/06 wheat marketing year production in the 2.0- to 2.1-billion-bushel range. United States wheat production of 2.05 billion bushels and 2005/06 marketing year exports at 1.0 billion bushels imply that 2005/06 U.S. wheat marketing year prices will average between $3.20 and $3.70. The expected 2005/06 U.S. average annual price is $3.45. Oklahoma and Texas wheat prices average about nine cents less than the U.S. average price.
June 20, 2005 wheat prices in central Oklahoma and the Texas Panhandle are projected to be about $2.80. This is 20 cents above my previous projection of $2.60. Prices tend to bottom out in August and could still reach the $2.60 level, however the odds are against it.
The USDA estimated that U.S. wheat planted acres are 2 percent less than last year. Corn plantings were estimated to be 1 percent higher than last year. And soybean plantings were estimated to be 2 percent less than last year.
Hard red winter wheat planted acres were estimated to be 4 percent less than last year. Soft red winter wheat planted acres were estimated to be 19 percent less, and other spring wheat acres were estimated to be 2 percent higher than last year.
As weather patterns and prices change, producers will make minor modifications to planting intentions. Weather and growing conditions will also determine how many planted acres are abandoned rather than harvested and will determine yields.
The above scenario indicates that expected June 20 wheat price is $2.80 and that the U.S. 2005/06 marketing year average price is expected to be $3.45. If the June 20 Oklahoma and Texas wheat price is $2.80 and the marketing year average price is $3.36 ($3.45 U.S.), then wheat prices will have to reach about $3.50 during the marketing year.
The current KCBT July wheat contract price is $3.36. Using a minus 40-cent harvest basis implies that the June wheat price will be $2.96. This is consistent with the $2.80 price prediction.
The KCBT December wheat contract price is $3.55. The five-year average November basis is about a minus 25 cents. This implies that the market is offering $3.30 for wheat delivered in November 2005.
USDA releases the first 2005/06 wheat production and use estimates on May 12. Keys to watch are U.S. and world production and U.S. exports and ending stocks. United States wheat ending stocks in the 550 million bushels range will support the above price outlook scenario.
Given that the U.S. only produces about 10 percent of the world's wheat production, world wheat production, stocks and use information must be take into consideration when predicting wheat prices. World 2004/05 wheat ending stocks are projected to be 5.4 billion bushels compared to 4.8 billion bushels last year and a five year average of 6.7.
Reports indicate that Canada and China have increased planted acres from 4 to 5 percent. Argentina and Australia planted acres are expected to be about the same or slightly higher than in 2004/05. World wheat crop conditions indicate that world wheat production will be about 21.6 billion bushels compared to 22.9 billion bushels this year and a five-year average of 21.0 billion bushels.
Over the last five years, world wheat consumption has averaged 21.6 billion bushels. World wheat production of 21.6 billion bushels would result in world wheat ending stocks remaining near the current 5.4-billion-bushel level and U.S. wheat prices averaging $3.45.
The numbers (benchmarks) to watch are U.S. 2005/06 wheat production (2.05 billion bushels), exports (1.0 billion bushels) and ending stocks (550 million bushels). World benchmarks are production (21.6 billion bushels) and ending stocks (5.4 billion bushels).