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Corn+Soybean Digest

Market Analysis

After a recent 10¢/bu. price decline, wheat prices increased 25¢ and finished 15¢ higher last week. Higher prices are partially due to delayed spring wheat planting and partially due to the severity of wheat losses in Oklahoma and Texas. There also appears to be a shortage of deliverable spring wheat, which increases the demand for hard red winter (HRW) wheat. A short spring wheat crop may create a protein premium for HRW wheat.

Reports are starting to be released about the freeze damage to the Texas, Oklahoma and Kansas wheat crops. Average Texas wheat production is about 96 million bushels. In April 2008, 48% of the Texas wheat crop was poor to very poor, and 19% was good to excellent. The April 2008 wheat crop condition index was 45 and Texas 2008 wheat production was 105 million bushels. The current April 2009 index is 28, and 74% of the wheat crop is in poor to very poor condition.

Only 8% of the Texas wheat crop is in good to excellent condition. Texas wheat production may be less than 50 million bushels. Oklahoma's wheat crop is rated 60% poor to very poor, 28% fair, 12% good and none excellent. In 2008, the Oklahoma wheat crop was rated 17% poor to very poor and 55% good to excellent. Oklahoma 2008 wheat production was 128 million bushels, compared to average production of 129 million bushels. Analysts have estimated 2009 wheat production to be between 60 and 90 million bushels.

Kansas' wheat crop is rated 19% poor to very poor and 44% good to excellent. In April 2009, the Kansas wheat crop was rated 20% poor to very poor and 43% good to excellent. Kansas’ 2008 wheat production was 367 million bushels from 9.6 million planted acres. Planted acres in 2009 are estimated to be 9.0 million or 6.3% less. Assuming 39-bu. yields, Kansas wheat production is expected to be about 340 million bushels.

There are sufficient wheat stocks to absorb these losses. However, 2009 U.S. production expectations are approaching the point where additional losses will result in higher prices. And, 85+° temperatures (seen last week) in Oklahoma and Texas will reduce yields.

Given present conditions, there appears to be more upside price potential than downside price risk. I would not price 2009 harvested wheat. Also consider selling a percentage of stored wheat on any rally. Watch the Kansas City Board of Trade (KCBT) July wheat contract. Prices above $6/bu. imply a target of $6.20. Prices above $6.20 imply a potential price rally to $6.60. This may be the year to revert back to the one-third, one-third, one-third strategy (June; September-October; November). For prices to increase, additional production losses are needed.

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