Economist: Lots of Unhappiness in the Wheat Market

June 14, 2010 05:11 PM
by Kim Anderson, Oklahoma State University Professor and Extension Economist
Railcars are loaded with wheat and there are no buyers. One elevator was looking at a $45,000 loss if the trainload of wheat was shipped. Demurrage must be paid if the trains do not leave the elevator on time. Another elevator reported that out of 105 cars, seven cars meet the protein limit and grade requirements. The result is basis falling from a minus $1.10 to a minus $1.67. Cash prices in some Oklahoma elevators are below $3. This $3 price is before dockage and grade discounts are applied. There are a lot of unhappy elevator managers, grain merchandisers, producers and flour millers (users). All were depending on a quality wheat crop with adequate protein.

Published reports show n/a (no) bid for 11% or less protein wheat at the Texas Gulf. Unpublished reports indicate that there are no bids (or the bid is so low that essentially there are no bids) for wheat less than 12% at the Texas Gulf. This is what happens when there is an oversupply of wheat and buyers can pick and choose where to originate wheat to purchase.
The USDA June Supply and Demand and the Wheat Production Reports were neutral for wheat prices. U.S. and world wheat ending stocks were lowered ever so slightly. Hard red winter wheat production was increased and soft red winter wheat production was lowered.
The Kansas City Board of Trade July wheat contract price closed above the $4.63 resistance level. If the contract price closes above $4.70 by Tuesday, June 15, the next target price will be $4.80. Oklahoma wheat basis at local elevators is between $1.15 and $1.70. The biggest factor is the uncertainty relative to protein. After the harvest, when elevators will have determined the protein level of the binned wheat, the basis may improve. I expect a 40 to 50 cent increase in the basis between now and Dec. 1.

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