The 2004 hard red winter wheat harvest has started in southern Oklahoma and Texas. Early indications are that yields are about as expected and quality is good. Demand appears to be relatively good. Prices could still fall to about $3.30 by mid-June.

There is a possibility that dry, windy conditions may reduce yields in northern Oklahoma and southern Kansas. If this happens, wheat prices may not fall to the $3.30 level.

The USDA predicted hard red winter wheat production to be 910 million bushels compared to 1.06 billion bushels last year. Wheat production is projected to be 369 million bushels in Kansas compared to 480 million bushels last year. Oklahoma production is projected to be 154.8 million bushels compared to 179.4 million bushels last year, and Texas production is projected to be 118.8 million bushels compared to 96.6 million bushels last year.

Follow trends

If the USDA's production projections are correct, wheat prices may follow last year's trends Between mid-May, 2003 and June 20, 2003, wheat prices declined from $3.11 to $2.70. Tight U.S. and world wheat stocks should support 2004 harvest prices above $3.20 per bushel.

During June and early July 2003, wheat prices were in the $2.65 to $2.85 range. Wheat prices bottomed out July 7 at $2.65 and peaked Aug. 18 at $3.64. Prices fell to $3.18 by early September and bottomed at $3.06 Oct. 14. By early December 2003, prices had increased to $3.90 and remained volatile into the 2004 harvest.

How actual 2004/05 marketing year supply and demand matches current expectations will determine if the volatile price movements are up or down.

USDA estimated total U.S. 2004 wheat production to be 2.63 million bushels compared to 2.34 last year. For the 2004/05 wheat-marketing year, U.S. exports are projected to be 975 million bushels compared to 1.17 billion bushels during the 2003/04 marketing year. U.S. wheat ending stocks are projected to decline to 499 million bushels from 2003/04's 526 million bushels.

World wheat production for 2004/05 is projected to be 21.08 billion bushels compared to 20.19 billion bushels last year and a 5-year average of 21.06 billion bushels. World wheat production peaked in 1997 at 22.42 billion bushels. The projected 2004/05 marketing year production of 21.63 billion bushels is near the second highest crop of 21.67 billion bushels produced in 1998.

World wheat ending stocks are projected to decline to 4.53 billion bushels, compared to last year's 4.73 billion bushels and a 5-year average of 6.7 billion bushels. World wheat ending stocks will have declined four years in a row.

The USDA projects the average annual 2004/05 marketing year wheat price to be $3.55. The USDA predicts that the average annual price could be as low as $3.25 or as high as $3.85.

For the 2004/05 marketing year annual price to average $3.25, wheat prices would have to fall to $3 or less by May 2005. Conversely, for wheat prices to average $3.85, wheat prices would need to reach $4.30 between now and May 2005.

Both U.S. and world wheat stocks are tight and will remain relatively tight between now and the 2005 wheat harvest. Any loss in production will impact wheat prices.

Tight wheat stocks imply that the 2004/05 wheat marketing year price patterns may be as volatile and as random as during the 2003/04 marketing year. Prices may reach $5 or higher or they may fall to below $3.

Two other important factors to watch are the U.S. corn crop and economic growth in the Asian countries. The 2004/05 wheat-marketing year is positioned to be good price wise.