Critical Trading Days for Wheat

October 11, 2010 05:56 AM

By Kim Anderson, Oklahoma State University

Maybe the USDA finally changed the WASDE Crop Supply and Demand estimates to what the large traders believed. The Funds were holding record or near record long corn and wheat futures contracts. Using the USDA's September estimates, the odds are that prices would decline and the funds could possibly take big losses. The October USDA WASDE estimates and projections resulted in lower than expected corn and wheat production and stocks. Prices were up the limit or near limit, and funds are holding profitable positions. Remember, to make a profit, the contracts must be sold.
Oct. 8 was a day of many market players both speculators and producers trying to stop the bleeding. Monday and Tuesday will be critical trading days. That will give market analysts time to evaluate USDA's estimates and projections and develop and implement strategies.
In the wheat supply and demand report, the USDA lowered U.S. 2010/11 wheat marketing year ending stocks from 902 to 853 million bushels (mb). Wheat production was lowered 41 mb and feed was raised 10 mb. World wheat ending stocks are projected to be 6.4 billion bushels. Note that the five-year average U.S. wheat ending stocks number is 596 mb and the world average is 5.6 billion bushels (bb). The projected ending stocks are 43 percent for the U.S. and 14 percent for the world. Unless Argentina and/or Australia have smaller wheat crops than expected, there will be more than adequate wheat. The five-year average price is about $5.59 (2006-10). If the projected 2010/11 wheat marketing year average price is not used and the 2005/06 price is, the average price is $4.56.
There may be two 900-pound gorillas messing with wheat prices. One is the corn market and the other is the funds. If you removed the fund money from the wheat futures market, wheat demand (at least on paper) probably would be significantly less and wheat prices would be lower. Uncertainty and excitement in the corn market - a potential shortage of corn - is spilling over into wheat prices. Both these gorillas are positive for wheat prices and wheat producers. How long the gorillas will stay in the market is anybody's guess. A small gorilla that could grow up is dry planting conditions in the hard red winter wheat belt.


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