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Wheat prices between $6 and $11

Wheat prices between $6 and $11
Production problems could raise wheat prices. Higher production could see lower offerings. Volatility is expected.  

Since late March, the Kansas City Board of Trade (KCBT) July wheat contract has traded between about $8.50 and $9.75. The $9.75 (approximate) resistance level has been tested three times and the $8.50 (approximate) support level has been tested twice.

At this writing, the KCBT July wheat contract price is $9.32. Texas panhandle elevators are offering about $0.83 less (-$0.83 basis) than the KCBT July wheat contract price ($9.32 - $0.83 = 8.49 cash). Oklahoma elevators’ wheat basis ranges from about a minus $0.48 to a minus $0.62 ($9.32 - $0.50 = $8.82 cash).

If production problems persist in the U.S., Europe, some Former Soviet Union Countries, and Western Australia, cash wheat prices could reach $11 by December. Higher production than expected could result in $6 cash prices.

In early June 2010, the price of wheat in Central Oklahoma and the Texas Panhandle ranged from $3 to $3.60 (mostly about $3.40). 

Between June 2010 and February 2011, wheat prices increased from about $3.40 to about $9. The $5.60 price increase was demand driven. During the 2010 marketing year, wheat exports increased from a projected 900 million bushels to 1.275 billion bushels.

Current wheat prices are about $8.50.  For the 2011/12 wheat marketing year U.S. ending stocks are projected to be 702 million bushels compared to projected 997 million bushels this time last year and actual 2010/11 marketing year ending stocks of 839 million bushels.

World ending stocks for 2011/12 are projected to be 6.7 billion bushels compared to May 2010/11’s projected ending stocks of 7.3 billion bushels. Actual 2010/11 marketing year ending stocks are 6.7 billion bushels.

June 2010 wheat prices were at the bottom of the potential price range. June 2011 wheat prices are expected to be in the upper third of the potential price range. Prices have farther to fall than last year.

Wheat stocks are not “tight.” Corn stocks are tight (well below average), and soybean stocks are tight. Corn stocks and prices could have a positive impact on wheat prices.

Another market factor that was significantly different in June 2010 was fund contract positions for KCBT wheat contracts. In June 2010, managed funds were short (sold) about 10,000 contracts (50 million bushels). Index funds were long about 45,000 (bought) KCBT wheat contracts (225 million bushels). The net fund positions in June 2010 were 175 million bushels long.

By November 1, 2010, managed funds were long 68,000 contracts (340 million bushels) and index funds were long 42,000 contracts (210 million bushels). Combined, the managed and index funds went from 175 million bushels net long in June to 550 million bushels net long in November.

Currently, managed funds are net long about 37,000 contracts (185 million bushels) and index funds are net long about 33,000 contracts (165 million bushels). The net fund positions are about 350 million bushels long compared to 175 million bushes long last year in June and 550 million bushels long in November.

Current KCBT wheat contract fund positions are 175 million bushels higher than June 2010 and 200 million bushels lower than the peak 2010/11 wheat marketing year long positions. This implies that changes in fund positions could result in substantially lower or higher wheat prices.

Wheat prices are volatile and are expected to remain volatile. Depending on 2011/12 marketing world wheat production, Oklahoma/Texas wheat prices could be $6 or $11 by December 1.

Producers probably will not go broke selling $8.80 wheat. This may be the year to sell all the wheat at harvest. Another strategy is to sell one-third at harvest, one-third in September/October, and the final one-third in November/December.

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