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There is a 50% chance of wheat prices above $7.77 and a 50% chance for prices below $7.77.

Kim Anderson

February 1, 2022

3 Min Read
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On any given day and at any given time, there is a 50%  chance that wheat prices will increase and a 50% chance that prices will decrease. Wheat prices are always at risk. 

I was visiting with a farmer with about 10,000 bushels of wheat in storage. He asked if he should sell the wheat at the current price of $7.77. I asked him which would hurt worse; “storing the wheat and having to sell wheat for $6.85” or “selling the wheat for $7.77 and not having the opportunity to sell it at $8.47”? 

The farmer said, “Not having the opportunity to sell wheat at $8.47.”  

 I said, “There’s your answer. Store the wheat.” 

 Because there’s a 50/50 chance wheat prices will go down, the farmer may end up selling the wheat for $6.85 or less. There’s always risk of lower prices. 

The reason there is a 50/50 chance that wheat prices will decrease is that information is used to determine prices.  

The way commodity traders make a profit trading wheat on the futures market is to obtain information about the world’s wheat supply and demand situation and then use the information to determine whether to buy or sell futures contracts. (Futures market contracts are used to determine local prices.) New information results in buys or sells, which cause prices to go up or down. 

Since no one knows whether the new information will be positive or negative price-wise, no one can predict which way prices will go. Voila, there is a 50% chance of prices going up, and a 50%bchance of prices going down. 

While price direction is difficult to anticipate, the range of prices may be more predictable. Market analysts know, within a degree of error, how much wheat is in storage around the world and how much wheat is needed to meet demand. This information may be used to predict a price range. 

At this writing, wheat may be forward contracted for 2022 harvest delivery in Medford, Okla., for $7.86, in Perryton, Texas, for $7.75, and in Snyder, Okla., for $7.78. Note that the Perryton forward contract is 11 cents less than the Medford price while the Snyder price is eight cents less.  

The supply and demand estimates for U.S. HRW wheat indicate that wheat use between now and harvest will result in 21% less wheat in storage than last year. This implies higher 2022 harvest prices ($7.86) than 2021 harvest prices ($6.35). 

Russia, Ukraine, and the European Union’s 2022 wheat production also influences U.S. wheat prices but to a lesser degree than U.S. wheat production.  

The important point is that the U.S. winter wheat harvest starts in late May while the Russian, Ukrainian, and European Union wheat harvest starts in July.  

The U.S. wheat harvest is the next new wheat to come on the export market. Production from Russia, Ukraine, and the E.U., should not have a significant impact on U.S. wheat prices until late July and early August.  

Higher U.S. production than predicted would result in lower prices than the currently offered $7.86.  However, if U.S. wheat production falls below expectations, prices would likely rise above $7.86. 

Wheat prices between Oct. 1, 2021, and Jan. 24, 2022, may be used to estimate a potential price range (Figure 1). The bottom price was $6.87 and the high price was $8.47.  

Wheat prices are at risk. However, there is a 50% chance of prices above $7.77 and a 50% chance for prices below $7.77. 

Figure 1. Daily Medford, Oklahoma Daily Wheat Prices: July 1, 2021, through January 24, 2022.

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Source: Comark Equity Alliance, Enid, Oklahoma.

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