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HRW wheat exports supporting prices

Hard red winter (HRW) wheat export sales are 9 percent higher than at this same time last year and HRW wheat sold for export but not shipped (outstanding sales) is 29 percent above last year. Soft red winter wheat (SRW) sales are 55 percent less than last year and total wheat sales for exports are 15 percent less than last year.

For the limited amount of HRW wheat that is shipped down the Arkansas, at this writing, barges can not unload and empty barges are unavailable. If barges were available, barge rates have increased from about $10 per ton to about $18 per ton. This is an increase from about 28 cents per bushel to about 50 cents per bushel.

It is fortunate that most HRW wheat sold for export is shipped out Texas ports. The week after the hurricane hit Louisiana and Mississippi, Kansas City Board of Trade (KCBT) December contact prices (HRW wheat) declined from $3.53 to $3.45.

Since Aug. 26, Texas Gulf basis has increased 2 cents. Cash prices have fallen about 6 cents per bushel. Central Oklahoma and Texas panhandle basis have remained about the same as on Aug 26.

There is concern that restricted Mississippi river barge traffic will put excess pressure on truck and rail carriers. Concern is that rail cars, which are scheduled to haul wheat from the Great Plains states to the Texas Gulf, may be diverted to haul corn and beans. If this happens, increased transportation costs could result in lower wheat prices.

Price factors

Factors supporting wheat prices are slow producer sales, reduced planted acres in Argentina, poor wheat crop conditions in Australia and wheat quality problems in Russia and some European Union countries. Foreign wheat production is projected to be 20.3 billion bushels compared to 20.8 billion bushels last year.

Argentina's 2005/06 wheat production is projected to be 496 million bushels compared to 588 million bushels last year and a 5-year average of 544 million bushels. Reports estimate that Argentine producers planted 16.6 percent less wheat than last year.

Australian wheat production is projected to be 780 million bushels, the same as last year and just above the 5-year average of 766 million bushel. If Australia's 2002 wheat disaster of 372 million bushels production is removed, the 5-year average is 873 million bushels.

Wheat production in the European Union is projected to be 4.6 billion bushels, which is less than last year's 5.0 billion bushels. Lower EU wheat production and a higher percentage of feed wheat have helped U.S. HRW wheat export sales and supported HRW wheat prices.

The U.S. wheat market situation has been disrupted by the hurricane. Normally, the wheat marketing-year price trend is set in late-August and early-September. During late August, wheat prices were trending sideways to slightly higher.

Keys to watch

Keys to watch are the KCBT December wheat contract price and the basis. The December contract has been trading between $3.42 and $3.65 per bushel. Two consecutive closes below $3.42 will indicated that prices will decline and the price target for the December contract will be $3.25.

Two consecutive closes above $3.65 well indicate that an up trend has been established and the next target price for the December contract will be $3.85.

The Texas Gulf basis is currently 62 cents (Gulf price is 62 cents above the KCBT December contact price). During the last five years, the Texas Gulf basis has averaged 42 cents. If the Gulf basis declines, cash price will decline relative to the KCBT December contract price.

Central Oklahoma and Texas Panhandle basis are about minus 15 cents (cash price 15 cents less than the KCBT December contract). Higher transportation costs and/or a lower Gulf basis could both result in lower Oklahoma and Texas Panhandle basis and lower cash prices.

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