by Kim Anderson, Oklahoma State University Professor and Extension Economist
The market tried to take out the $5.10 price resistance level with the KCBT March wheat contract and failed. The downtrend is broken and a sideways pattern between $4.80 and $5.10 has been established. Technically, the good news is that Tuesday's 18-cent rally set a new short-term top and the volume (number of contracts traded) was high. Lower prices on Wednesday and Thursday were with relatively low volume.
At the USDA Annual Outlook Conference, the USDA released estimates for 2010/11 wheat, corn and soybean planted acres, production and ending stocks. These estimates are not based on surveys and are not "official." Official estimates will be released March 31. 2010 wheat production is estimated to be 1.945 billion bushels (bb). Ending stocks are estimated to be 940 million bushels (mb) compared to 981 mb for the 2009/10 marketing year. The average annual 2010/11 price is estimated to be $4.90 compared to $4.85 for the 2009/10 marketing year.
Oklahoma's current price is about 40 cents below the average U.S. wheat price. During the last two wheat marketing years, Oklahoma's wheat price averaged 28 cents less than the U.S. average wheat price. This implies a 2010/11 wheat marketing year average Oklahoma wheat price of about $4.62.
Two things can lead to substantially higher prices: below-average U.S. winter yields and/or below-average foreign wheat yields. Below-average U.S. winter wheat yields would result in increasing prices in May, June and July. Relatively low foreign wheat yield will mainly impact wheat price in late August and beyond. This scenario implies that one marketing strategy to consider is to delay pricing wheat until harvest, and maybe not until next September. One other market factor that could support wheat prices is problems with the 2010 corn crop. This impact would be mostly in July and August.