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Wheat market prices increase $2.75

Wheat market prices increase $2.75
A higher wheat price implies a higher income. Higher prices did result in increased price volatility and price risk. Higher income implies a required higher level of planning and management.

Between the 2006/07 and the 2008/09 wheat marketing years, average wheat prices shifted up about $2.75, and the marketing-year price cycle changed. In the five-years before the 2007/08 wheat marketing year, the Oklahoma and Texas panhandle average annual price was $3.62. After the 2007/08 marketing-year, the five-year average annual wheat price was $6.37.

Before the 2007/08 wheat marketing year, wheat prices tended to peak during the October through December time period. After the 2007/08 marketing year, wheat prices tended to peak during the August/September time period.

Some analysts believe that price shifts were mostly due to the ethanol driven corn land requirements. Changes in the seasonal price movements may also have been the result of increased export competition and changes in commodity futures contract delivery and storage requirements.

Because of increased input costs, higher prices may not have resulted in higher profits. Higher prices did result in increased price volatility and price risk.

During the 2008/09 through 2012/13 wheat marketing years, wheat prices ranged from $3.39 to $9.05. The average price change from one day to the next was 11.5 cents. Just for the month of June, the average price range (low price to high price) was $1.35. The average price range during any one marketing year was $3.88. The highest price range was $5.60, and the lowest was $3.

During the five-year period from June 2002/03 through May 2006/07, wheat prices averaged $3.62, and the price range was from $2.63 to $5.21. The average marketing-year price range was $1.38. The average daily price change was 5 cents.

Averages work well over time but may create problems in the short-run. During the 2008/09 marketing-year, wheat prices were above $8 during most of June only to be below $5 by late October. In the 2010/11 year, wheat prices were below $4 for all of June only to be above $7 in mid-November. Last year (2012), wheat prices went from $6 in early June to $9 in mid-July.

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Before the 2007/08 marketing-year, the price trend tended to be established in the late August/September time period. Signals are indicating that this “rule” has changed. In four of the last five years, the price trend was apparent by July 1. Five-years of price trends are not sufficient to develop a “rule.”

One problem with predicting the Oklahoma/Texas wheat price trend in June and July is that U.S. winter wheat is only about 5.8 percent of the world’s wheat production. On a marketing-year basis, most of the world’s wheat production is harvested after the U.S. winter wheat has been harvested.

At this writing, some Oklahoma elevators are offering 20 cents less than the KCBT July wheat contract price for harvest delivered wheat. Texas panhandle elevators are offering 35 cents less.

At this writing, the KCBT July wheat contract price is $7.42, which translates to an Oklahoma forward contract offer of $7.22 and a Texas offer of $7.04.

Using the last five-year average June price range implies that Oklahoma June wheat prices will be between $6.55 and $7.90. Texas June prices will be between $6.40 and $7.75.

A $2.75 upward shift in wheat price may have occurred, but the shift came with problems. Increased price volatility and changes in the marketing-year price trends may require changes in marketing strategies.

Volatility alone may increase the need to use the “dollar cost averaging” technique, meaning to sell over time. The sales may need to be in one-fourth increments rather than in one-third increments between June and December. Another strategy would be to sell an equal amount each month for the six months from June through December.

A higher price implies a higher income. Higher income implies a required higher level of planning and management.


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