Will Wheat Prices Continue to Fall?

February 1, 2010 06:00 PM

by Kim Anderson, Oklahoma State University Professor and Extension Economist
The KCBT wheat contract price broke the price support levels. The March contract closed about 8 cents lower today at $4.87 and appears to have a target of $4.75. The July wheat contract broke the $5.20 support and closed today at $5.10. The next support price is $5. Closes below $4.75 and $5 would imply another 20 cents down.

Using a minus 85 cent basis off the KCBT July wheat contract, wheat may be forward contracted for June 2010 delivery for $4.25. For June wheat prices to be greater than $5, the 2010 wheat production must be well below average. Given current wheat conditions, this is not very likely. Even if it were, producers will be better off with above-average production and lower prices than with below-average production and $5 wheat. Forty bushels per acre wheat at $3.75 is $150 per acre, while 29 bushels per acre wheat at $5 is $145 per acre.
An increase in export demand would cause a small increase in prices, but this is not likely. The 72-cent price decrease that occurred within the last three weeks may help export sales. The price decline was necessary for U.S. wheat prices to be more competitive with competing export countries.
A strategy to consider for the 2010/11 wheat marketing year is to sell one-fourth to one-third of the wheat at harvest and to store the remainder to sell in late fall and early winter. The Oklahoma/Texas wheat harvest is the next harvest that will have a big impact on wheat prices. We want a large crop. What is needed is below-average harvest in competing exporting countries for prices to increase in the fall and winter. The risk would be about 7 cents per month storage and interest costs.
For more of Anderson's analysis, visit http://www.agecon.okstate.edu/anderson/


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