Wheat Markets Reflect Drought Conditions

September 6, 2011 08:51 PM

by Kim Anderson, Oklahoma State University Professor and Extension Economist

The market normally does not watch the weather for the next year's wheat crop (2012 in this case) until about December or January. Given the severe drought situation and the projected continued lack of precipitation in Texas, Oklahoma and the southern half of Kansas, wheat prices partially reflect the drought conditions.
The drought impact on prices will increase as Nov. 1 approaches. Right now, the odds indicate that 2012 wheat production in Texas, Oklahoma and Kansas will be below average.
Unless the drought is broken, the most important marketing tool for 2012 winter wheat in Oklahoma, Texas and Kansas may be crop insurance. Word has it that RMA/USDA will not accept drought as a reason not to plant wheat. This implies that wheat will need to be "dusted-in" to qualify for wheat crop insurance. If the crop is dusted-in and a stand is not established, it may be about March 1 before the crop may be declared a loss.
Watch as SUNUP-TV reports more on the drought's effects:
The KCBT December wheat contract finished the week a few cents lower than last week's close and below the $9 resistance level. The general consensus is that many traders wanted to clear the books for a three-day weekend.
Wednesday, Sept. 7, is a critical day. If the December contract close is below $8.80, the contract price will probably test the $8.50 support. If the December contract close is above $9, the uptrend is expected to continue and the price target will be $9.50. A close between $8.80 and $8.95 implies that a sideways pattern between $8.50 and $9 may be established.
The next WASDE (World Agricultural Supply and Demand Estimates) report will be released on Sept. 12. Early expectations are for little change in wheat estimates. Exports and ending stocks may be slightly lower.
Both U.S. and world wheat stocks are expected to remain slightly above average. Until it rains a lot in the Great Plains, wheat prices should remain near current levels.
For More Information
Read more wheat news.
Find the latest Kansas City Board of Trade marketing news in the KCBT Review blog.


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