Wheat prices are at their lowest point since June 2005. Prices are low because the world is awash with wheat and other grains. As long as production is greater than use, prices will stay below the cost of production for many growers.

Low prices may be the first positive signal.

During the nine marketing years 1999/00 through 2007/08, average annual wheat use was 22.1 billion bushels per year and world production averaged 21.8 billion bushels. With world use averaging 300 million bushels per year more than production, wheat prices rose. The average price during the 2007/08 marketing year was $6.48.

Annual world wheat production went from 22.5 billion bushels in 2007/08 to a record 25.1 billion bushels in 2008/09. Starting with the 2008/09 marketing year and finishing with the 2016/17 marketing year, seven of these nine years had record world production. The nine-year average annual world production was 25.6 billion bushels.

For the 2008/09 wheat marketing year through the projected 2016/17 marketing year, wheat use was 25.2 billion bushels, which is 400 million bushels per year less than production.

Relatively tight corn and feed grain stocks, above average demand for wheat as feed, and reduced world wheat production resulted in a 2012/13 average annual price of $7.77.

WORLD PRICE $3.70

For the 2016/17 wheat marketing year, the world price is projected to be $3.70. For the price to increase, world production must be less than use. Two major factors that cause lower production are weather and a decline in planted/harvested acres.

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At this writing, wheat may be forward contracted in Oklahoma and Texas for about $3.80, which is below variable (out-of-pocket) costs of production for most Oklahoma and Texas wheat producers.

The longer wheat prices remain at current levels, the more land around the world that will be taken out of production and planted to some other crop or left fallow.

To get wheat prices above $5 may require world production to be 24 billion bushels or less, which would require more than a reduction in planted acres. Poor growing conditions (bad weather) in two or more major wheat producing countries will be required. Bad weather is only good if it is in another country.

POSSIBLE UPTREND

A positive signal is that the KC nearby wheat contract price appears to have bottomed out and may be developing an uptrend. To establish an uptrend, the KC September price must close above $4.30 for two consecutive days. Closes above $4.40 would confirm the short-run price uptrend.

Another positive signal is USDA’s projected average annual 2016/17 U.S. wheat price of $3.70. USDA’s projected U.S. average annual price range is $3.35 to $4.05.

Since June 1, Texas and Oklahoma daily cash wheat prices have averaged about $3.30. Texas and Oklahoma prices normally average between 10 cents and 15 cents less than the national average. For June 2016 through May 2017 wheat prices to average $3.55 ($3.70-$0.15), Oklahoma and Texas prices must go above $3.55 and stay there long enough to raise the average price from $3.30 to $3.55.

Current odds are that the average annual U.S. wheat price will be less than $3.70, but higher than the $3.35 bottom.

Positive signals are that the cure for low prices is low prices, producers around the world are expected to reduce wheat planted acres, and the KC contract price trend may be signaling the bottom and slightly higher prices.