Wheat harvest prices are dependent on corn prices. Producers considering pricing June delivered wheat should watch the Chicago Board of Trade (CBT) July corn contract price and the Kansas City Board of Trade (KCBT) July wheat contract price.

Producers using the CBT July corn contract to project the June wheat price need to know the local average June wheat basis, the June corn basis for corn delivered to their location and whether feed mills or feedlots will purchase wheat directly from producers or from the local elevator. If wheat is purchased from the local elevator, the producer cash wheat price will be about 30 cents less than if the corn user buys wheat directly from producers.

At this writing, the CBT July corn contract price is \$4.21. The June corn basis is projected to be 55 cents. This implies that corn may be purchased for June delivery at \$4.76.

Assuming that wheat has about the same feed value as corn and that feedlots and feed mills will buy wheat when the wheat price is 10 cents less than corn, the June wheat basis using the CBT July corn contract is 45 cents (\$0.55 corn basis - \$0.10 preference). If the CBT July corn contract is \$4.21, the expected cash wheat price is \$4.66.

The average 2006 June wheat basis for some elevators in Oklahoma and the Texas panhandle was a minus \$0.28 last year and the five-year average is a minus \$0.28. Given that June corn prices are expected to be higher than June wheat prices, feed mills and feedlots are expected to buy wheat for feed use. This should cause the June wheat basis to be about the same as last year, \$0.28.

With \$4.76 corn and using a minus \$0.28 expected June wheat basis, the expected KCBT July wheat contract price is \$4.94 (\$4.66 cash wheat + \$0.28 basis). At this writing, the KCBT July wheat contract closed at \$4.89¼. This could imply that the market may be expecting a minus \$0.23 wheat basis.

The above calculations were: CBT July corn contract price was \$4.21. The expected June corn price was \$4.76 (\$4.21 + \$0.55 basis). Assuming that the cash wheat price must be \$0.10 less than the cash corn price to buy wheat for feed, the cash wheat price would be \$4.66 (\$4.76 corn - \$0.10 preference). If the KCBT June wheat basis is a minus \$0.28, the KCBT July wheat contract price would be \$4.94 (\$4.66 cash wheat + \$0.28 basis).

Another way to calculate the expected June wheat price would be to use the CBT July corn contract price and add the difference of the June corn and wheat basis minus the 10 cent preference in the cash corn and wheat price.

For example, the expected corn basis is \$0.55 and the expected wheat basis is a minus \$0.28 or a difference of \$0.83. Given that cash wheat prices may trade \$0.10 less than cash corn, the price difference between the CBT corn contract and the KCBT July wheat contract would be \$0.73.

If the CBT July corn contract price is \$4.21, the expected KCBT June wheat contract price would be \$4.94 (\$4.21 + \$0.73). The expected difference (spread) between the CBT July corn contract price and the KCBT July wheat contract price is \$0.73.

The above analysis assumes that corn users are buying wheat directly from producers. If corn users are buying wheat from elevators (like after harvest), then the delivered wheat price to the feedlot or feed mill will be 30 to 35 cents above the elevator price.

Using the analysis above, the breakeven cash wheat price for \$4.76 corn would be \$4.36 (\$4.76 corn - \$0.30 handling and transportation - \$0.10 preference). Also in this case, the KCBT July wheat contract price would be \$4.64 (\$4.36 cash wheat + \$0.28 basis).

At harvest, corn prices are expected to support wheat prices. If corn users buy wheat directly from producers, the cash wheat price is expected to be about 10 cents less than the delivered corn price. If corn users buy wheat for elevators, the cash wheat price is expected to be about 40 cents less than the delivered corn price.