On Feb. 28, wheat could be forward contracted for harvest delivery at Perryton, Texas, for $5.04. Perryton forward contract prices stayed above $5 until March 14.
Forward contract prices at Pond Creek, Okla., hit $5.09 on March 1, and remained between $4.99 and $5.19 through March 15. Perryton and Pond Creek wheat prices had not been above $5 since early July 2017.
Between mid-December and March 1, drought conditions developed and/or increased in the majority of the U.S. hard red winter wheat area, and in 39 percent of the U.S. spring wheat area. The 90-day seasonal drought outlook is for persistent drought conditions in most of the HRW area.
Supporting the seasonal drought outlook is a 90-day forecast for above average temperatures for all HRW areas south of the Kansas northern border. Below average precipitation is projected for areas south of a line going about 45 degrees, west to east, including nearly all of Oklahoma and Colorado. Kansas and states to the north of the line are predicted to receive average precipitation.
January and February wheat price increases were the result of a $1.11 increase in the KC July futures wheat contract price and a 30-cent increase in the basis. (Note that due to the timing of futures contract price changes and basis changes, the total cash price increase was about 91 cents.)
The Perryton basis for June 2018-delivered wheat increased from minus 60 cents Jan. 10 to minus 35 cents (a 31-cent increase) Feb. 13. The Pond Creek basis increased from minus 71 cents Feb. 9 to minus 31 cents (a 40-cent increase) March 8.
At this writing, harvest forward contract prices are $4.57 at Pond Creek and $4.53 at Perryton ($4.57 and $4.53 may appear low, but these prices are significantly better than the $3.80 price offered at mid-December 2017).
The driving forces resulting in prices going from above $5 to $4.55 include weather (moisture) impact on 2018 hard red winter wheat yield and quality expectations, and the resulting changes in KC futures contract positions by managed funds.
Managed funds buying KC wheat futures contracts supported higher prices. Between Jan. 23 and March 6, managed fund KC wheat positions changed from 17,650 contracts (88.3 million bushels) short to 19,401 contracts (97 million bushels) long. During the period from Jan. 23 to March 6, managed funds bought 185.3 million bushels of HRW futures contracts.
The wheat market has changed from pessimistic to semi-optimistic. However, the world wheat price of $5.91 f.o.b. (free on board) Black Sea port may limit Oklahoma and Texas cash wheat price increases during the 2018/19 marketing year.
World HRW price increases may be measured by the Black Sea port price of Russian wheat. In late December, Russia sold hard red wheat f.o.b. for $192.35 per tonne (metric ton = 2205 pounds), or $5.24 per bushel. On March 1, Russian wheat was sold via the Black Sea port for $217 per tonne, or $5.91 per bushel. Both sales were to Egypt.
Two important points: Russian wheat prices increased about 67 cents per bushel, and the next exportable wheat in the world to be harvested is U.S. wheat. Current world wheat prices should remain at current levels or higher.
With quality milling wheat, June through August HRW cash prices may be above $5. The U.S. market needs HRW quality milling wheat.