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June 2008 wheat prices above $8

Since last November, corn, soybean, and spring wheat markets have been bidding for land, labor, capital, and management. The soybean market started the bidding war in late October 2007. In late November, corn recognized that soybean prices were increasing and to prevent the loss of too many acres, the corn market joined the price war.

Spring wheat stocks were tight and to buy additional land for spring wheat, the spring wheat market bid up wheat prices.

The price war ended in early March after most producers had made their production plans for the summer crops. The key price variable for all crops is now the weather. Current conditions imply an Oklahoma and Texas Panhandle harvest wheat price between $8 and $10.

On March 31, the USDA released the 2008 planted acres estimates for wheat, corn, and soybeans. Corn-planted acres were estimated at 86 million acres compared to the prerelease average trade estimate of 87.3 million acres. The range of the trade estimates was between 85.7 million acres and 89.8 million acres.

Soybean-planted acres were estimated to be 74.8 million acres compared to the prerelease average trade estimate of 71.5 million acres. The range of the trade estimates was between 70 million acres and 74.2 million acres. USDA's estimate was above the highest trade estimate.

All wheat-planted acres were estimated to be 63.6 million acres compared to the prerelease average trade estimate of 63.6 million acres. The range of the trade estimates was between 62.3 and 65.4 million acres.

A comparison of the prerelease trade estimates with USDA's estimates implied that corn prices were expected to increase (USDA's 86 million acres vs. trade's 87.3 million acres). Soybean prices were expected to decline (74.8 million acres vs. trade's 71.5 million acres). The estimates were expected to have little impact on wheat prices.

The prerelease estimates were published (not at the same time) about one week before the USDA report. After publishing the prerelease estimates, analysts continued to update their estimates, and the market continued to position price in anticipation of USDA's estimates.

Before USDA's estimates were released, the Chicago Board of Trade (CBT) December corn contract price had declined from $5.85 on March 11 to $5.21 on March 25. The March contract price closed at $5.77 the day before the USDA's release. The four days after the release, the December corn contract price increased 25 cents to $6.02, 81 cents above the $5.21 low.

On March 3, the CBT November soybean contract price peaked at $14.47. The November contract closed at $11.59 (-$2.88) on the Friday before the USDA plantings estimates were released. After the estimates were released, the soybean contract price fell 99 cents to $10.60 and then increased $1.01 to $11.59.

The KCBT July wheat contract price peaked at $13 on March 12. The July contract price declined to $9.97 before the report was released and then declined an additional 47 cents after the release. Three days later, the July wheat contract price had increased 50 cents to $10.

The market has relatively good information about how much of each crop producers intend to plant. The weather may delay or prevent some corn plantings. In this case, the corn acres may be planted to soybeans.

Winter wheat planted acres are known, and most of the winter wheat is out of dormancy. Moisture conditions are relatively good east of a line along the western edge of Oklahoma, not including the Panhandle, north through Kansas and Nebraska. Moisture conditions are dry west of this line.

It appears that the KCBT July wheat contract price may stabilize between $9.50 and $11.50. With larger negative basis, the KCBT July wheat contract price implies that June cash prices in Oklahoma and the Texas Panhandle will be between $8 and $10.

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