"How low can KC wheat futures contract prices go?” The answer is about $4.50. If this is the case, a Price Loss Coverage (PLC) program payment may be triggered for the 2015 wheat crop, and producers may decide to participate in the Payment Loss Coverage program rather than the Agriculture Risk Coverage (ARC) program.
The USDA has not announced a signup date. However, if producers want to use the Supplemental Coverage Option (SCO), they must sign up for SCO with their crop insurance agent by September 30, 2014.
The crop revenue insurance guaranteed price for the 2015 wheat crop is $6.30. Projected KC wheat contract prices may help trigger revenue insurance losses. Wheat crop insurance must be purchased by September 30.
With a guaranteed price of $6.30, buying Enterprise Unit revenue insurance at higher percentage levels (say 80 percent) may make more sense than buying Optional Unit insurance at lower levels (say 65 or 70 percent).
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KC (hard red winter) wheat futures contract prices closed below the strong support level of $6. The good news is that KC wheat contract prices aren’t in a “free fall.” The bad news is that the lowest possible price may be near $4.50, which may take 12 to 18 months to reach.
Additional questions are: Between now and May 2015, how low can wheat prices go? What is the potential price range for the KC July ’15 wheat contract price for June 2015? And, if the world’s 2015 wheat production is another near record and if U.S. winter wheat production (especially HRW wheat) is well above average, how low could KC wheat futures contract prices go between June 2015 and May 2016?
On October 15, 2008, KC wheat contract prices broke the $6 support level and then fell nearly 70 cents in six days. Prices then increased back to $6 in the next six days and then fell to $4.90 by December 5, 2008. Wheat prices then traded between $4.50 and $5.60 until breaking back above $6 on July 22, 2010.
The 2008/09 and 2014/15 marketing years’ supply and demand situations are similar. The 2014/15 hard red winter (HRW) wheat stocks-to-use ratio (ending stocks divided by use) is projected to be 25.7 percent compared to 27.6 percent in 2008/09.
What may have caused significantly lower prices in 2008/09 and 2009/10 compared to 2006 through 2008 was above average 2008/09 and 2009/10 wheat production in the U.S. and world.
The 2009/10 HRW stocks-to-use ratio increased to 48.7 percent. All U.S. wheat’s stocks-to-use ratio was 28.9 percent in 2008/09and 48.4 percent in 2009/10.
The world wheat stocks-to-use ratio was 26.4 percent for 2008/09, 31 percent for 2009/10 and is projected to be 27.8 percent for 2014/15.
If the KC wheat contract price ranges are divided into three price ranges: $4.50 to $5.25, $5.25 to $6, and $6 to $9, current supply and use conditions as well as historical price patterns indicate the potential low for the KC nearby wheat contract price is about $5.25. For prices to go below $5.25, expected 2015 wheat production must be high enough for the stocks-to-use ratios to increase dramatically.
The answers to the three questions above are: Between now and May 2015, KC wheat contract price may go as low as $5.25. June 2015 KC July wheat contract prices may be as low as $5. With near record U.S. and World wheat production, the 2015/16 wheat marketing year KC contract price may get as low as $4.50.
Depending on the location and time of year, Oklahoma and Texas cash prices may be 20 cents to 60 cents less than the nearby KC wheat contract price.