Who would-ah-thought that we would have declining and very tight wheat stocks and declining prices?  Possibilities: economic theory is being molested, the market is being manipulated to take advantage of producers, or world stocks have trumped U.S. wheat stocks.

For the 2012/13 wheat marketing year (June through May), the average marketing year wheat price was $7.77 based on 718 million bushels in ending stocks. The projected price for the 2013/14 marketing year is $6.85 with projected ending stocks of 583 million bushels. Ending stocks declined 183 million bushels and prices declined 92 cents. “Go figure.”

For the 2012/13 marketing year, hard red winter (HRW) wheat ending stocks were 343 million bushels. HRW ending stocks for the 2013/14 marketing year are projected to be 193 million bushels. Oklahoma’s average annual wheat price for 2012/13 was $7.45 and is projected to be $6.98 for 2013/14.

For the 2014/15 wheat marketing year, U.S. wheat ending stocks are projected to decline from 583 million bushels to 540 million bushels. The USDA has not released a 2014/15 marketing year ending stocks estimate for HRW wheat. Some analysts are projecting a decline in HRW wheat stocks.

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With less wheat in the bin and an expected smaller 2014 HRW wheat crop, you would expect wheat prices to be higher now than at the beginning of the 2013 HRW wheat harvest. At this stage in the harvest last year, the average central Oklahoma June 2013 wheat price was $7.19 ($7.08 – Texas Panhandle). The current price with less wheat is $6.96 for Oklahoma and $6.84 for Texas— lower stocks and a lower price.

The USDA projects 2014/15 U.S. wheat production to be 7.7 percent of world wheat production. Twenty-years ago (1994/95), U.S. wheat production was 12.1 percent of world wheat production.

Exports down

During the 1994/95 wheat marketing year, the U.S. exported 31.9 percent of the world’s exported wheat. The USDA projects the U.S. to export 17 percent of the world’s 2014/15 marketing year wheat exports. The U.S. is not the dominant wheat supplier it once was.

World wheat ending stocks are projected to increase for the third year in a row. The world’s “stocks-to-use” ratio (ending stocks divided by use) is projected to increase for the third year in a row. These two price factors, ending stocks and the stocks-to-use ratio, support world wheat prices lower in 2013/14 than 2012/13. Prices in 2014/15 should be slightly lower than in 2013/14.

The odds are, unless the HRW wheat crop is larger than expected, the U.S. wheat market will need to ration the tight stocks. This situation implies that HRW wheat prices may decline into the June/July time period and then increase into the fall and winter.

Remember that 2013/14 HRW wheat prices declined into the July 2013 time period and then increased into the fall and winter. This year, as it was last year, a determining factor will be the size of foreign hard wheat production.

Economic theory (the supply, demand, and price relationships) works. The markets are not being manipulated, and there is not a giant “rat hole” where a certain market sector is making millions at the expense of other market participants.

Lower prices result from increased supply. However, tight U.S. HRW wheat stocks will establish a floor price. And, the price should be above the five-year average price of $6.48.