Since late June, 2014, the value (index) of the dollar measured against other major currencies has increased from 80 points to 95 points, 18.8 percent. Wheat at the Texas gulf that sold for $100 in late June is now only worth $81.20.

Since late June, the price of wheat in Oklahoma and Texas has declined about $1.90 or 27 percent. About 70 percent ($1.33) of the $1.90 price decline may be attributed to the lower dollar value. The other 30 percent (57 cents) may be attributed to changes in the supply and demand situation.

The current U.S. dollar index (95) is the highest since September 2003. During the period February 2000 through January 2003, the U.S. dollar index was between 95 and 120. If the U.S. dollar index peaks at 120, the relative cost of wheat for export would increase another 28 percent. Relative Oklahoma and Texas cash wheat price could decline another $1.85.

The odds are extremely low that the U.S. dollar index will reach 120. Over the last 25 years, the U.S. dollar index has ranged mostly between 75 and 97. The next higher range is 97 to 105, and then 105 to 120. Of these 25 years, the index was above 105 for only three years (February 2000 to January 2003).

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The U.S. dollar index is in a strong uptrend. Signs indicate that the index may peak around 97. If the index goes above 98, then the next target is 105. This would be about a 10 percent increase in the index or, worse, another 10 percent decline in wheat prices.

Other factors impacting wheat (that 30 percent of the price decline that’s not attributed to the higher dollar value) include foreign wheat markets, weather, and market fund positions. The biggest factor (foreign markets) may be that economic conditions in many importing countries have declined. Some countries do not have the currency or the credit rating to buy wheat. These countries are willing to give up quality for price. The U.S. has excellent wheat quality that commands a higher price than some wheat in the EU, Russia, or Ukraine.

U.S. hard red winter wheat (bread flour wheat) stocks are 24 percent below average while foreign wheat stocks are 4 percent above average. Foreign suppliers have the ability to meet foreign wheat demand.

The above is not a surprise to the market. U.S. wheat exports sales are 80 percent of USDA’s marketing year export projection. The average, at this time of year, is 80 percent.

Currently, Oklahoma and Texas wheat may be forward contracted for harvest delivery for about $5.25. This was calculated using a minus 35 cents basis the KC July wheat contract price. The range in basis is from a minus 50 cents to a minus 15 cents.

A lot can happen between now and harvest and probably will. Weather will determine yields and harvested acres. Economic conditions in U.S. markets will impact market fund and speculative investments or disinvestments in wheat. And then there is the dollar value.

Since we’re discussing abstract events, remember that U.S. wheat production is normally only 8 to 9 percent of world wheat production. U.S. wheat exports are now only about 20 percent of world wheat exports (15.7 percent during the 2014/15 marketing year). U.S. wheat prices are influenced by the value of the dollar and outside market (fund) investments.

Markets go in cycles. The index of the U.S. dollar was relatively low for four years, which supported wheat prices. The wheat market must now adjust to a relatively high dollar index that weighs against prices.