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Marketing: Price rally may be short-lived

The way the market is acting, there is a 30 percent chance that wheat prices will reach $3.90 within the next few weeks. There is also a 30 percent chance that wheat prices will reach $4.30 by December 1. The expected July 1 wheat price in central Oklahoma and the Texas panhandle is $3.50.

Price volatility is expected to continue. During the last three marketing days, the price in central Oklahoma went from $3.38 to $3.63 and back to $3.53. Wheat prices have traded in a 50-cent price range for the last two months.

The reason for optimism is lower U.S. wheat production and lower U.S. and world wheat ending stocks. Higher foreign wheat production may create the situation for lower prices. The foreign wheat harvest will impact wheat prices in late August and early September. Thus, wheat prices may peak in late June or early July and then decline as the foreign wheat harvest begins.

The USDA predicts that U.S. wheat production will be 2.08 billion bushels compared to 2.23 in 2003. Hard red winter wheat production is projected to be 910 million bushels compared to 1.06 billion bushels in 2003.

United States 2004/05 marketing year wheat ending stocks are projected to be 499 million bushels compared to 526 million bushels last year and a 5-year average of 720 million bushels. Lower U.S. wheat production and relatively tight stocks are supporting wheat prices.

Foreign wheat production is projected to be 19.6 billion bushels compared to 17.9 billion bushels last year and a 5-year average of 19 billion bushels. Higher production than last year is projected in the European Union, Former Soviet Union, the Eastern European countries and Argentina.

Australian production is projected to be 882 million bushels compared to 919 million bushels last year and a 5-year average of 781 million bushels. Canada’s production is projected to be the same as last year and three percent above the 5-year average.

China’s wheat production is projected to decline from 3.16 billion bushels to 3.09 billion bushels. Chinese wheat production has declined five years in a row and six out of the seven years. China is projected to import 300 million bushels of wheat compared to 110 million bushels last year.

There are two important facts to remember. First is that the production in most of the major and non-traditional wheat exporting countries is projected to be higher than last year. Second is that the production from these countries is harvested in the September through December time period.

Since world wheat stocks are tight, wheat importers need U.S. wheat. Once the foreign exporters’ wheat harvest begins, competition for the export market will increase dramatically. The major price impacts will be in September and again in November.

The November price impact will be the result of harvests in Argentina and Australia. If current world wheat production expectations are correct, then the 2004/05 marketing year price pattern will be relatively high prices through harvest and then declining prices throughout the fall and winter.

Since world wheat ending stocks are expected to remain tight, the 2005 U.S. winter wheat crop could impact wheat prices throughout next winter. If planting conditions this fall are less than ideal, wheat prices could increase.

Between now and May 2005, U.S. wheat prices could fall as low as $3 or be as high as $6. Prices will depend on the size of the 2004/05-world wheat crop, which countries have higher production and which countries have lower production.

In volatile, uncertain markets, the prudent thing to do is dollar base averaging. Unless you cannot afford lower prices, sell some wheat now and some later. If you cannot afford lower prices, sell all your wheat now.

Dr. Kim Anderson is an agricultural economist with Oklahoma State University.

e-mail: [email protected]

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