Since mid June, the Kansas City Board of Trade December wheat contract has traded between $3.42 and $3.66 per bushel and Oklahoma and Texas panhandle cash prices have mostly been between $3.02 and $3.30. The marketing year price trend is normally set in late August and early September.
Two consecutive closes below $3.45 will indicate that the contract price may fall to $3.25. Then it will take two consecutive closes below $3.25 to signal that the Dec contract price may fall to $3. It must be noted that these prices should be interpreted as “zones” and not absolute price levels.
The fact that, at this writing, the KCBT Dec contract closed at $3.42 yesterday and then $3.46 today may signal that wheat prices maybe attempting to establish a downtrend. However, demand is currently sufficient to keep prices in the sideways pattern. An uptrend will not be established unless there are two consecutive KCBT Dec closes above $3.65.
There are market factors that signal that prices will trend lower and factors that signal that prices will trend higher. The negative factors may have the upper hand. The negative factors include increased U.S. wheat stocks, higher projected ending stocks and lower exports.
Positive factors include declining world wheat stocks and potential lower Argentine wheat production. Another positive factor is that the USDA raised the average annual 2005-06 wheat marketing year price projection to $3.10 from $2.85. The potential average annual price range was raised from $2.60 – $3.10 to $2.85 – $3.35.
If U.S. wheat producers followed the normal pattern when selling their wheat, over one-third of the 2005 wheat crop was sold in June and July. The average U.S. wheat price for June and July was $3.20.
For the 2005/06 marketing year wheat price to average $2.85, the remaining two-thirds must be sold for an average price of $2.68. For the marketing year wheat price to average $3.10, the remaining wheat must be sold for an average price of $3.05. And for the average annual price to be $3.35, the remaining wheat must be sold for an average price of $3.42.
The current U.S. average price is about $3.30, thus the odds that 2005/06 marketing year wheat prices averaging below $3 are relatively small. Likewise the odds that the remaining wheat will be sold for an average price of $3.42 are higher than averaging below $3 but are also relatively small. This scenario implies that between now and Jan. 1, Oklahoma and Texas cash wheat prices will probably remain between $3 and $3.40.
World and U.S. wheat ending stocks and U.S. wheat exports will be instrumental in determining wheat prices. World 2005/06 wheat marketing-year ending stocks are projected to be 5.2 billion bushels compared to 5.45 billion bushels last year and a 5-year average of 6.3 billion bushels.
Lower world ending stocks are mostly the result of lower production in the European Union and Argentina. The European wheat crop is being harvested and Argentina’s wheat crop is being planted. Argentina’s expected 16 percent decrease in production is far from certain.
United States wheat ending stocks are projected to be 634 million bushels compared to about 540 million bushels the last two years and a 5-year average of 634 million bushels. The winter wheat harvest is essentially complete. However, the spring wheat harvest is still uncertain.
United States wheat exports are projected to be 975 million bushels compared to 1.06 billion last year and a 5-year average of 1.02. For wheat prices to increase, U.S. wheat ending stocks must decline. Exports are the area that has the highest potential to result in lower ending stocks.
The 2005/06 U.S. wheat price trend will be up, down or sideways. Unless Argentina and/or Australia’s wheat production is less than expected, the current odds are that wheat prices are going to remain in the 20 to 25 cent price range between $3 and $3.40.