March 11, 2019
Oklahoma and Texas producers may forward contract wheat for $4.32 (-10 cent basis) at Burlington, Okla., and $4.17 atn Perryton, Texas (-30 cent basis). If producers harvest good milling quality (60 pound test weight and 12.5 percent protein) wheat, June 2019 wheat prices may be closer to $5.00.
At this same date last year, the Burlington, Okla., forward contract price was $5.08 and the Perryton, Texas, forward contact price was $5.23. The Burlington 2019 forward contract price is 76 cents less than the 2018 forward contract price. Perryton’s wheat forward contract price is $1.06 less that the 2018 forward contract price.
These prices are difficult to explain when world hard wheat ending stocks are projected to be 435 million bushels less (-24 percent) than 2017/18 ending stocks. And, U.S. hard red winter (HRW) wheat stocks are projected to be 90 million bushels less (-15.5 percent) than last year’s ending stocks.
WANTS TO BUY
Note that the Burlington 2019 forward contract basis is a minus 10 cents compared to a minus 70 cents in 2018, and that the Perryton basis is a minus 30 cents compared to a minus 55 cents in 2018. These figures may imply that the domestic market wants to buy 2019 harvested wheat.
At this writing, the KC July ’19 contract price is $4.47. On March 6, 2018, the KC July ’18 contract price was $5.58. With the 2019 Burlington forward contract basis 60 cents higher and the Perryton basis 25 cents higher than last year, why is the KC July ’19 futures contract price $1.11 lower than the KC July contract price in March 2018?
Futures contract prices are based on projected supply and demand conditions. The 2018/19 marketing year world wheat harvest is complete. India and Pakistan’s wheat harvest begins later this month. Both India and Pakistan may export some wheat. This is not normal, and if it happens, it may reduce U.S. HRW exports.
PROJECTION TOO HIGH?
The USDA projects 2018/19 marketing year HRW wheat exports to be 320 million bushels. Normally, 96 percent of marketing year sales have been sold by early March. To date, only 276 million bushels (86 percent) have been sold. The USDA 320 million bushel export projection may be too high.
Also export competition is expected from Argentina. Argentina’s wheat production was 705 million bushels, compared to 680 million bushels last year and a five-year average of 534 million bushels. Argentina is projected to export 514 million bushels compared to 447 million bushels last year and a five- year average of 317 million bushels.
Another factor is the value of the U.S. dollar against other currencies. The index is approaching 97 compared to 89 this time last year. With $5.00 wheat, the difference is equivalent to 45 cents on the export market.
Then, the 2019 HRW wheat crop is in significantly better condition than last year. This fact could mean higher yields (increased supply) and lower protein, which implies lower prices.
During the last month, the market has taken 80 cents off the KC July ’19 wheat contract price and added 15 cents on the basis. The net change in the harvest forward contract price is a minus 65 cents. The market can add it back on as fast as it took it off.
It is a long time until harvest. If the USDA’s HRW wheat export projection is correct and the 2019 wheat harvest is milling quality, Oklahoma and Texas wheat prices may be near $5.00 at harvest.
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