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Corn+Soybean Digest

Wheat Market In Waves

When the Kansas City Board of Trade (KCBT) December wheat futures contract closed last week at $5.42/bu., the contact’s record for rollercoaster behavior was intact. It was down from pushing $5.80 in mid-November. Chicago Board of Trade (CBOT) December wheat finished the Thanksgiving week at $5.48 after it hit about $5.80 mid-month. It’s a trend that reminds producers that marketing needs to be high on their lists, whether it means watching the market themselves or leaving it in the hands of a consultant.

Kim Anderson, Oklahoma State University grain marketing economist, points out that between Oct. 2 and Nov. 17, the KCBT December contract price increased from $4.60 to $5.74, up nearly $1.15. “Some market analysts contend that the $1.15 price increase was mostly due to ‘outside investors’ (the new term for the index and hedge fund buyers),” he says. “What producers must figure out is, ‘do outside investors have research that indicates that wheat is 'undervalued' or are the outside investors blindly buying wheat futures contracts?"

Anderson says U.S. wheat ending stocks are projected to be 885 million bushels compared to 657 million last year and 306 million for the 2007-2008 marketing year. World wheat ending stocks have increased from 4.5 billion bushels for the 2007-2008 marketing year to a projected 6.9 billion for 2009-2010. The wheat ending stocks five-year average is 506 million bushels for the U.S. and 5.2 billion for the world, says Anderson. The five-year average total U.S. wheat use, including exports, is 2.21 billion and total world wheat five-year average use is 22.8 billion.

“For U.S. wheat ending stocks to decline to the five-year average, 2010 wheat production would have to be less than 1.84 billion bushels,” says Anderson. “The five-year average wheat production is 2.13 billion. The 1.84 billion production estimate was calculated by subtracting 379 million from the five-year average use of 2.21 billion. For world wheat ending stocks to decline to the five-year average (5.24 billion), 2010 world wheat production would need to be less than 21.1 billion.

“The 2009-2010 U.S. marketing year wheat production was 2.22 billion and world production was 24.7 billion. To reduce ending stocks to the five-year average requires 2010 U.S. production be 17% less than in 2009 and world production needs to be 14.6% less.”

Mike Woolverton and Dan O'Brien, Kansas State University Extension grain economists, say conditions indicate that global wheat production will decrease next year. “Low wheat prices around the world discouraged growers,” they say. “U.S. overall wheat acreage was projected to be down, but wet fields and the late soybean harvest will cause a sharp drop in soft red winter wheat acreage in the Corn Belt.

“Argentinean wheat area planted is down about 40% because it was too dry to plant. Ukraine and parts of Russia suffered a months-long drought during planting time. Recent rains have allowed the wheat to come up, but winter-kill will take its toll.”

They say wheat price should strengthen in late winter and early spring as supply is diminished and concern about next year’s production moves to center stage. Anderson says the five-year U.S. average wheat price is about $5, adding that the market may now be signaling that the "new below-average wheat price is any price below $5.” If this is the case, current cash prices in the $4.60-4.80 range across Oklahoma and parts of Texas and Kansas may not be too much out of line, he says.

“Another question,” Anderson asks, “is how much above average are 885 million bushels? This is what the market is trying to define. Another factor that must be considered is the price of the grain commodities compared to the price of the energies, metals and other commodities. Some believe that grain prices are low relative to energies and metals.

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