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Wheat supply, demand and price

At this writing, wheat producers in Oklahoma and the Texas panhandle may forward contract harvest delivered wheat for about $7.60. Many wheat producers are concerned that they may not get the chance to sell wheat for $10 or higher. The market only offered forward contract prices above $10 for 20 business days in late February and early March.

Since Jan. 1, the average forward contract price offer has been $9.14. The lowest forward contract price offer was $7.43 (May 14). The highest harvest forward contract price offer was $12.09 (March 12). The forward contract price was above $12 one day and, only in a limited number of locations.

Harvest forward contract price offers have followed 2008 hard red winter wheat production expectations. The USDA crop condition reports indicated that the percentage of the 2008 hard red winter (HRW) crop that was classified in very poor or poor condition reached the peak in the March 9 and March 16 reports.

In early March, some market analysts estimated Oklahoma's 2008 wheat production to be about 110 million bushels and the Kansas wheat crop to be around 290 million bushels. Total hard red winter wheat production was estimated to be around 770 million bushels.

On May 1, the USDA estimated Oklahoma wheat production to be 189.5 million bushels, Kansas production to be 357.2 million bushels, and Texas production to be 98.6 million bushels. Total U.S. hard red winter wheat production is estimated to be 1.01 billion bushels.

Since early March, harvest forward contract wheat price offers have declined about 35 percent. Production expectations have declined about 31 percent. While the percentages are not exactly the same, lower prices have mostly been offset by higher production expectations. Expected gross revenue from 2008 wheat sales is only slightly less with 1.01 billion bushels than it was with 770 million bushels.

After the hard red winter wheat is harvested and in the bin, the market must allocate the wheat over the marketing year (June 1 through May 31).

The market will need about 162 million bushels in June and July. About 80 million bushels of hard red winter wheat have been sold for export. United States flourmills mill about 41 million bushels of hard red winter wheat per month.

It is estimated that producers have forward contracted about 140 million bushels of wheat to be delivered at harvest. The market must buy at least 40 million bushels in June and July. In reality, the market must buy enough wheat to meet June, July, and August needs, which could mean needing as much as an additional 100 million bushels.

With Colorado, Kansas, Oklahoma, and Texas wheat production projected to be 671.5 million bushels, and if 240 million bushels are needed in June, July, and August, the market will need to buy over one-third of the Colorado, Kansas, Oklahoma and Texas wheat crops.

Foreign wheat production is projected to be a record 21.7 billion bushels. Foreign wheat will be available for export in late August and early September. Between now and late August, U.S. hard winter wheat will be the only wheat available to end-users.

After late August, the massive foreign wheat crop (if the projections are correct) will cause a dramatic decline in the demand for U.S. wheat, and prices are expected to decline.

The caveat is that world wheat stocks are at a record low (stocks-to-use ratio) and if wheat production expectations are not met, wheat prices will increase dramatically.

The dilemma is, "When should producers sell their wheat?" If production meets expectations, the best time to sell is at harvest. If there is a repeat of the 2007-2008 wheat crop harvest where production was significantly less than expected, the best time to sell will be in October and November.

Price will react to the supply and demand situation. Before the U.S. harvest, price and production will move in opposite directions, equalizing income. After the U.S. harvest, an individual producer's supply is fixed.

Consider selling at least one-half of the wheat at harvest, one-fourth in September/October and the final fourth in November.

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