March 22, 2012
An old adage states, “Rain makes grain.” Recent rains will make more 2012 wheat production unless temperatures get below freezing. Because of early wheat development, a freeze could drastically lower expected Kansas, Oklahoma, and Texas wheat production.
Wheat came out of dormancy in relatively good condition. Warmer temperatures and moisture resulted in rapid recovery from poor stands. In most of the hard red winter (HRW) wheat area, yields could be well above average.
Potential problems still exist: disease, weeds, and insects. Freezing temperatures are another potential problem. In most of the Oklahoma and Texas HRW wheat area, the average last freeze date is between April 1 and April 15. The average last freeze date in Northwest Texas and the Oklahoma Panhandle is April 15 to May 1. These freeze dates are averages. Fifty percent of the time, a freeze occurs after these dates.
Since last November, moisture conditions in much of the HRW wheat area have improved from extreme drought to adequate moisture. The Oklahoma Panhandle and parts of the Texas Panhandle still have areas of extreme and exceptional drought.
Since early November, Kansas City Board of Trade July 2012 wheat contract prices have declined from about $7.75 to as low as $6.51. At this writing, the KCBT July wheat contract price is $6.82.
Two critical KCBT July contract prices levels are $6.50 and $7.50. July contract prices have been between $6.50 and $7.50 since November 9, 2011. Of interest is that since November, each price peak (Jan 3, Feb 1, Mar 5, and Mar 19) has been lower than the last price peak and each low price (Dec 14, Jan 20, Feb 21,and Mar 9) has been higher than the last low price.
Prices have been moving into a tighter and tighter trading range and will either break out the top or the bottom of the tightening price range. If it does not freeze, the bet will be for breaking out the bottom and lower prices. A freeze would not imply prices breaking out of the $7.50 top.
If the July contract price breaks $6.50, the next target price will be about $6.
Due to expected high U.S. and world wheat production, U.S. wheat stocks are expected to increase during the 2012/13 marketing year. Two things may limit the stocks increase.
First, given relatively good planting conditions in the U.S. spring wheat area, some analysts believe that increased corn plantings may limit spring wheat plantings. This would be positive for HRW wheat prices.
Second, lower planted spring wheat acres imply lower 2012/13 U.S. wheat stocks. Also, wheat with relatively high protein is in limited supply. Lower supplies of hard spring wheat could result in increased demand for HRW wheat.
Reduced wheat production in Eastern Europe, the Ukraine, Russia, and China could result in 2012/13 world wheat stocks remaining near current levels. A recent report also indicated that Western European wheat production may be reduced due to excessive winter kill.
Positives for wheat prices are tight corn stocks and the wheat/corn price relationship. During the wheat harvest, wheat is expected to be purchased for feed. Currently, the world wheat/corn price relationship, especially for feed wheat, has resulted in China and other countries buying wheat for feed rather than corn.
Not only does “rain make grain,” but more grain normally results in lower prices. I have observed that most producers prefer to have grain to sell at relatively low prices than little or no grain to sale at relatively higher prices.
Some analysts are recommending that wheat producers have price protection on 25 to 40 percent of their insured production. Unless it freezes in the major wheat production areas, this recommendation is probably good advice.
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