There are signs that we've seen the top of the wheat market. By Sept. 12, the market should set the trend for the marketing year.
A Kansas City Board of Trade (KCBT) December wheat contract price above $4 will imply that the top has not been set and the trend will be increasing. A KCBT December contract price below $3.60 will imply that the top has been set and the trend will be sideways or down.
Reasons wheat prices have gained $1 since June 1 are that the market was expecting a 2.1 billion-bushel U.S. wheat crop and a 20 billion-bushel foreign wheat crop. Currently, the market expects U.S. wheat production to be less than 1.7 billion bushels and foreign wheat production to be about 19.3 billion bushels.
Corn production and projected ending corn stocks are other reasons that wheat prices increased. Corn production estimates declined from about 10 billion bushels to 8.89 billion bushels and ending stocks estimates declined from 1.47 billion bushels to 767 million bushels.
The market has a relatively good estimate of the wheat crop in the Northern Hemisphere. However, wheat crops in the Southern Hemisphere have been planted just recently. It is reported that Argentina's wheat planted acreage is 4 percent less than expected and Australia is experiencing drought in three major wheat production areas.
Drought in Australia has resulted in wheat production expectations declining from 900 million bushels to 735 million bushels. Australia's five-year average wheat production is 834 million bushels.
Market analysts are also watching U.S. winter wheat planting conditions. Drought conditions are prevalent from western Oklahoma and Texas up into the Dakotas, west through Colorado and up into Montana. Reports are that producers are applying fertilizer and planning to increase planted acres.
Poor planting conditions would have a positive impact on wheat prices this fall. Good planting conditions are not expected to impact prices until late winter and early spring.
When the KCBT wheat price was about $3 per bushel, nearly all the market news was negative. U.S. wheat production was projected to be 2.1 billion bushels and foreign wheat production was projected to be 20 billion bushels. More negative news was not going to have a large impact on prices. However, positive news did have a big impact on prices.
Currently, positive news is driving the market. It is possible that Australia's wheat production will be lower than currently expected. Given the proverb, “Markets tend to underestimate short crops,” the odds are that Australia's wheat production will be higher rather than lower.
Something else to remember is that wheat buyers have had four years of relatively low prices and few problems originating and shipping wheat. It may take extremely low stocks before buyers change their buying habits and dramatically bid up wheat prices.
Recently, Tunisia bought Ukraine wheat at $3.02 per bushel. South Korea bought European Union wheat at $3.55 per bushel and Korea bought U.S. hard red winter wheat at $4.64. All the wheat was reported to be milling quality.
Some say, “The Ukrainian and EU wheat was lower quality than the U.S. wheat.” This is a possibility. But it implies that some millers (importers) are willing to give up quality for price. And price favors other countries.
Between now and Dec 1, wheat prices could increase another 40 cents per bushel or decline 40 cents. Current supply-and-demand conditions imply that on Dec. 1 the KCBT December wheat contract price is expected to be about $3.75.
Kim Anderson is an Extension economist at Oklahoma State University.