The marketing-year price trend is normally set in late August and early September. If that is the case for the 2011/12 wheat marketing year (June 1 through May 31), the trend is definitely down.
Since Aug. 29 ($8.99), Kansas City Board of Trade (KCBT) Dec wheat contract prices have declined $1.94 ($7.05). Today, the Dec contract set a new contract low ($6.98). There is very strong price support at about $7. If the Dec contract price closes below $7 for two consecutive days, the next support is at about $6.60. The next strong support is at about $6.
Lower prices are the result of excess world wheat supplies. Friday's USDA Grain Stocks report estimated wheat stocks at 2.15 billion bushels (bb) compared to the average trade estimate of 2.05 bb. Corn stocks are estimated to be 1.13 bb compared to trade estimates of 960 million bushels.
The result was a $0.28 decline in KCBT wheat prices and a limit $0.40 decline in corn contract prices. Chicago Board of Trade (CBT) wheat was down $0.42. This increase in U.S. wheat stocks is on top of the Sept WASDE report that estimated 2011/12 marketing year world wheat ending stocks to be 7.15 bb compared to a five-year average of 6.5 bb and 7.1 bb last year.
The price downtrend is also the result of the funds liquidating long positions. Managed fund positions at the CBT are net short. Managed fund positions at the KCBT are net long. This reflects the demand for higher protein wheat. KCBT wheat contract prices are about a $1 premium to CBT wheat prices. Hard red winter wheat basis and the protein basis both increased this week.
Drought conditions continue to plague Texas, Oklahoma and southern Kansas. South Central Kansas and the eastern section of Oklahoma's wheat area received some rain and some wheat has been planted. There is little to no subsoil moisture and the wheat will be dependent on timely rains.
If I had to guess Oklahoma's 2012 wheat production, it would be about 40 mb compared to a five-year average of 105 mb. Texas's wheat production would be about 30 mb. Remember that wheat is a resilient plant and can produce under extreme conditions. The problem is that lower production can easily be replaced.
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