The answer to “When will wheat prices increase?” depends on how “increase” is defined.
An increase up to 50 cents could happen within the next few weeks. If you’re talking about 50 cents to a $1 increase, you will probably have to wait until something happens to lower 2016 U.S. and/or foreign wheat production expectations — probably January through March.
Oklahoma and Texas wheat prices will go above $6.30 when world wheat production is below 25.4 billion bushels.
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Since June 2008, Oklahoma (Goltry) daily wheat prices have averaged $6.30, with a high price of $9.06 (4/25/11) and a low price of $3.41(6/09/10). Texas panhandle (Perryton) daily wheat prices have averaged $6.20, with a high price of $9.06 and a low price of $3.38. Texas prices tend to run about 10 cents lower than Oklahoma prices. At this writing, the Goltry Oklahoma price is $4.42, and the Perryton, Texas price is $4.21.
Goltry prices will be used in the remainder of this article (Figure 1 - Page 2).
FACTORS IMPACTING PRICE
Market factors that may cause wheat prices to increase are lower than expected Argentine or Australian wheat production, a significant decline in the dollar index, lower U.S. 2016 winter wheat production expectations, and/or below average 2016 world wheat production.
Both Argentine and Australian wheat harvests are in progress. Market reports indicate that Australia’s wheat production may be less than expected and that Argentina’s production expectations have not changed. Any future difference between expected and actual production should not have much impact on U.S. wheat prices.
World wheat ending stocks are projected to be 8.3 billion bushels. The average is 7.3 billion bushels. Just to lower world wheat ending stocks to the average would require about a 1.5 billion bushel reduction in 2016 world production.
For U.S. wheat prices to increase more than $2, world wheat production for 2016 needs to be less than 25.4 billion bushels (2015 world wheat production was 26.9 billion bushels). During the last five years, world wheat consumption has averaged 25.3 billion bushels per year.
Since June 2008, the three price rallies of $2 or more were in 2010, 2012, and 2013. In 2010, wheat prices increased from $3.41 in early June to $9.06 by January 2011. Significantly lower than expected foreign wheat production caused the price increase. In 2010, world wheat production was 24 billion bushels down from over 25 billion bushels in both 2008 and 2009.
Between May and July 2012, wheat prices increased from $6 to $9. U.S. wheat production was above average, at 2.25 billion bushels, but world production was only 24.2 billion.
Between January and April 2014, wheat prices increased from $6 to $8. Poor growing conditions indicated that both U.S. and world winter wheat production would be below average. Growing (weather) conditions improved, causing both U.S. and world wheat production expectation to increase, and prices went back below $6 in May 2014.
Between now and January 2016, the odds of a 50-cent or more price increase are relatively small. For prices to be above $6.30 before June 2016, the market must believe that 2016 world wheat production will be below 25.4 billion bushels. The odds of this are small.
In other words, do not expect a significant wheat price increase until after the 2016 Oklahoma and Texas harvests are complete. And if 2016 world wheat production is above average, don’t expect prices above $6.20 until 2017.