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Mixed scenario for wheat market

Wheat producers in southern and western Oklahoma and western Kansas may have the best wheat crop established in years. Producers in north central Oklahoma and along the Kansas boarder have about the worst. Like Jekyll and Hyde, these producers are concerned about different marketing problems.

Producers that have good wheat stands are concerned about the June 2007 wheat price and if they should forward contract or hedge some of the expected production. Producers with poor wheat stands or no stands at all are concerned about loss of grain income, loss of grazing income and are evaluating alternate crops.

At this writing, the KCBT July wheat contract price is $5.15 and on an uptrend. Elevators are offering about a minus 50-cent basis for harvest delivered wheat. Thus, wheat may be forward contracted for 2007 harvested delivery for about $4.65.

When considering selling wheat, first estimate a wheat price range. For example, the market is offering about $4.65 for harvest delivered wheat. A relatively large 2007 U.S. winter wheat crop could cause the price to fall to about $4 and below average production could result in June ’07 prices increasing to $5.50.

Next decide what percentage of expected production you want to sell and then ask, “Which will hurt the most both financially and psychologically, having to sell wheat for $4 or not having the opportunity to sell wheat for $5.50?” If you can not afford to sell wheat at $4, forward contract or hedge. If it is a 50/50 situation, price one-half bushels to be sold and gamble with the remaining one-half.

The projected price and price range ($4 to $5.50) may depend on wheat stocks, the size of the 2007 U.S. winter wheat crop and the condition of the foreign wheat crop in June 2007.

In June 2007, U. S. and world wheat stocks will be tight. United States wheat ending stocks are projected to be 418 million bushels compared to a five-year average of 590 million bushels. World wheat ending stocks are projected to be 4.4 billion bushels (118.8 million metric tones) compared to a five-year average of 5.9 billion bushels.

The USDA projects that 2006/07 U.S. wheat exports will be 925 million bushels. To export 925 million bushels, weekly shipments of wheat and wheat products must average 17.8 million bushels. As of the week ending Nov. 23, weekly wheat export shipments have averaged 15.2 million bushels. The odds are that USDA’s export estimate is too high and that U.S. ending stocks will be greater than 418 million bushels.

The bench-mark 2007 U.S. winter wheat production is 1.45 million bushels. As production deviates from this bench mark, the KCBT July ’07 wheat contract price will deviate from $5.15 and the forward price offer will also change.

Some producers who have poor stands or no wheat at all are determining how to make up for lost wheat and stocker income. One alternative being considered is grain sorghum. Some elevators are currently paying $3.70 per bushel for sorghum.

The sorghum price may be based on the Chicago Board of Trade corn futures contract price. The CBT March corn contract price is $3.90 and the September ’07 corn contract price is $3.73. This implies that 2007 harvested corn (sorghum) prices are expected to remain relatively high.

Budgets show that $3.50 sorghum may produce a higher return per acre than is produced from wheat with $4.50 wheat prices. The comparison will depend on the potential sorghum per acre yield compared to wheat yields. Sorghum is an alternative that some producers are putting a pencil too.

Good producers tend to survive and make a profit. They survive by knowing the alternatives, having ability to determine what the alternatives mean to them and then making the decisions that increase the odds of success.

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