Sideways Wheat Prices Pattern

July 20, 2011 10:03 AM

By Kim Anderson, Oklahoma State University

The market signals are that Oklahoma wheat prices have bottomed out, at least for awhile. The KCBT Sept wheat contract challenged the $7 support price twice with daily lows below $7 and no closes above $8. The Sept contract price closed at $7.65 on Friday, July 15. This is above the $7.50 support price. The Sept contract price target is $8. The downtrend has been broken. If the contract price closes two consecutive times above $8, an uptrend will be established. It will take two consecutive closes below $7 to reestablish the downtrend.
The USDA released the July WASDE (World Agricultural Supply and Demand Estimates) on July 12. U.S. 2011/12 marketing year wheat production was increased from 2.06 billion bushels (bb) to 2.11 bb. Hard red winter wheat production was estimated to be 791 mb, down 22 percent from last year. Soft red winter wheat production was estimated to be 458 mb, 93 percent higher than last year. World wheat production for the 2011/12 marketing year was reduced from 24.9 bb to 24.3 bb. Canada and Ukraine had the largest reduction in projected production.
U.S. wheat ending stocks were lowered from 687 million bushels (mb) to 670 mb. @010/11 wheat marketing year ending stocks were 861 mb. World wheat ending stocks were lowered from 6.8 bb to 6.7 bb. 2010/11 world wheat ending stocks were 7.0 bb.
Hard red winter wheat will continue to be priced as a food grain and will not be influenced much by corn. Soft red winter wheat is being used in some feed rations and will be influenced by corn prices.
The current price pattern is sideways. There is still over 50 percent of the world's wheat to be harvested. The marketing year price trend is normally set in the late-August to early-September time period. As low as prices got, the way to bet is for the KCBT Sept contract to remain above $7 and move (with volatility) sideways between $7 and $8 to slightly higher.
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