Between July 1, 2015 and January 4, 2016, wheat prices declined $1.66. Since January 4, Oklahoma and Texas wheat prices have only declined 15 cents.

Fifteen cents in two months is definitely a slow grind.

The wheat market appears to be in a “Catch-22.” There are few reasons for prices to go lower. There may be fewer market reasons for prices to go higher. So, wheat prices continue to reach new lows, but the actual change in price is relatively small.

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Market factors keeping prices low are (1) projected record world ending stocks, and (2) 2016/17 world production and stocks. World ending stocks are projected to be a record 8.8 billion bushels, which is 900 million bushels higher than 2015/16 record ending stocks of 7.9 billion bushels.

The International Grains Council projected 2016/17 marketing year world wheat production to be 26.1 billion bushels, compared to 2015/16 marketing year production of 26.9 billion bushels (the USDA estimated 2015/16 world production to be 27 billion bushels).

The USDA estimates that, during the 2015/16 wheat marketing year, the world will use 26.1 billion bushels of wheat. World use in 2014/15 was 25.9 billion bushels. If 2016/17 world use is 26.1 billion and production is 26.1 billion bushels, 2016/17 world ending stocks would be unchanged at 8.8 billion bushels.

MORE UPSIDE POTENTIAL

No expected change in world wheat supply or in world use should result in little change in current wheat prices.

Expectations of world production (deviations from 26.1 billion bushels) will change over time. Changes in expectations will impact prices. Current price levels (relatively low) lend themselves to more upside price potential than downside price risk.

While the world wheat supply and demand situation has the greatest price impact, U.S. supply and demand is important. The USDA recently released 2016/17 U.S. wheat supply and demand estimates. 2016 U.S. production was projected to be 1.991 billion bushels, and use (domestic plus exports) was 2.093 billion bushels. Beginning stocks were 966 million bushels, and imports were estimated to be 125 million bushels. The 2016/17 total supply was estimated to be 3.082 billion bushels and use was 2.093 billion bushels.

The 2016/17 wheat ending stocks were projected to increase from 966 million bushels in 2015/16 to 989 million bushels. A 23 million bushel increase should have little impact on prices.

BASIS DIFFERENCES

The USDA projected the 2016/17 marketing year average wheat price to be $4.20. Oklahoma and Texas prices tend to be 10 cents to 15 cents less than the U.S. average price.

Price history suggests that KC contract prices could remain at current levels, and the cash price decline another 75 cents to 80 cents ($3). During the 2009/10 wheat marketing year, KC nearby contract prices were near current levels ($4.50), yet cash wheat prices bottomed out at $3.

The difference between now and in 2009/10 is that the current cash price basis is minus 60 cents, compared to minus $1 to minus $1.35 in 2009/10. That 2009/10 basis was due to relatively high corn stocks and relatively low quality wheat in storage.

The USDA has projected 2016/17 corn ending stocks to be near the 2.0 billion level, compared to 1.7 billion for the 2009/10 marketing year. The quality of wheat in storage will be determined at harvest.

Wheat prices may be grinding lower. But unless the U.S. wheat crop is well above average and relatively low quality, current wheat prices should be near the bottom.