At this writing, the Kansas City Board of Trade (KCBT) July ’07 wheat contract price is $4.66. The five-year average central Oklahoma and Texas Panhandle June basis is about a minus 30 cents. This implies that wheat may be hedged for June 2007 delivery with an expected price of $4.36.
Some Oklahoma and Texas Panhandle elevators are offering forward contracts using a minus 40 basis, which translates to a forward contract price of $4.26. This implies that elevators are taking 10 cents protection on the basis. An above average 2007 wheat crop could result in a below average basis (-45¢). A below average crop could result in an above average basis (-20¢).
Two major keys in projecting the June 2007 wheat price is ending stocks and production. Marketing year 2006/07 wheat ending stocks are predicted to be 434 million bushels compared to 568 million bushels in May 2006 and a five-year average of 584 million bushels. The five-year average price has been $3.31.
For the last three marketing years, U.S. wheat ending stocks have been between 540 million bushels and 568 million bushels and the average annual price has been about $3.40. For the 1996/97 wheat marketing year, the ending stocks were 444 million bushels and the average annual price was $4.30.
During the last five years, U.S. wheat production has averaged 2billion bushels and ranged from 1.6 billion bushels in 2002 to 2.3 billion bushels in 2003. 2006/07 wheat marketing year wheat production is projected to be 1.8 billion bushels and the 10-year average is 2.2 billion bushels.
Given the relative high wheat price, 2.05 billion bushels will be used as expected 2007/08 wheat marketing year production.
The 2007/08 wheat supply is estimated to be the 435 million bushel 2006/07 ending stock, 2.05 billion bushel production and 100 million bushels imports. Thus, total U.S. wheat supply for 2007/08 would be 2.585 billion bushels.
The five-year average domestic wheat use (seed, feed and food) has been 1.165 billion bushels and has been relatively stable.
Exports are more difficult to estimate. The five-year average is 1 billion bushels with a range from 850 million bushels to 1.16 billion bushels. 2006/07 U.S. wheat exports are projected to be 900 million bushels. Given tight U.S. stocks and relative high U.S. wheat prices, 2007/08 exports are projected to be 925 million bushels.
Total U.S. wheat use for the 2007/08 marketing year is projected to be 2.09 billion bushels. With a supply of 2.585 billion bushels and use of 2.09 billion bushels, 2007/08 marketing year ending stocks would be 495 million bushels.
Remember that 540 million bushel ending stocks resulted in a $3.40 average price and that 440 million bushel ending stocks resulted in $4.30. Ending stocks of 495 million bushels should result in an average price between $3.40 and $4.30. Thus, an expected 2007/08 average price of $3.80 would be a realistic projection.
Coming into June 2007, both world and U.S. stocks will be tight. Thus, wheat prices are expected to remain relatively high at the beginning of harvest and then decline as the harvest progresses through Kansas. As the market obtains wheat needed for milling and exports, prices are expected to decline.
The June wheat price is expected to be above the marketing year average, decline into harvest and then recover into late fall and early winter. Thus, the June 2007 wheat price in Oklahoma and the Texas Panhandle is expected to be $3.80. Do you want to price some wheat at $4.26?