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Wheat prices not likely to increase significantly
Between now and the first of the year, wheat prices will move in an abnormal manner. Wheat producers who use sales as an end-of-year income tax management tool will begin to move wheat into the market, and buyers will be taking advantage of this situation. Beyond this situation, there will not be much market activity during the following week. After the first of January, I expect the market trends to become more defined. Both the Argentinean and Australian wheat harvest should be nearly complete. The U.S. wheat crop will be the next one harvested. It is extremely unlikely a significant price improvement will occur. Both corn and soybean prices are low, which is holding a lid on wheat prices As of this writing, the Kansas City Board of Trade March wheat contract has traded in a 6-cent price range for more than a week. Nothing much is likely to happen in the wheat market. World and U.S. stocks are adequate to meet current demand. However, stocks are still below average, and any decrease in supply or potential decline in production will have a positive price impact. One market concern is the supply of milling quality wheat. At the present time, milling quality wheat appears to be available. At this writing, the market is offering about $2.91 for wheat delivered next June. This was calculated by subtracting the minus 35-cent basis elevators are offering for June ’05 delivered wheat to the KCBT July wheat contract price ($3.26 to 35 cents). The average government wheat loan for 2005 is $2.75. A price offer of 12 cents above the government loan may not be worth considering. The real question is, what price would make you forward contract your wheat? The answer may depend on the potential prices and how much risk you can take. My current price prediction for June 20, 2005, in central Oklahoma and the Texas Panhandle is $2.60. The KCBT July ’05 contract price and current elevator basis offer indicates a June 20 price of $2.91. One problem in reviewing past prices is that in 1996, the monthly average June price was $5.48 per bushel. Using the monthly average, June 1996 price may bias wheat prices upward. For example, the five-year monthly June price is $2.88. The eight-year monthly average June price is $2.86. However, the 10-year monthly average June price is $3.20. If the 1996 average June price ($5.48) is removed, then the 10-year monthly average June price declines to $2.94, and the 20-year average price is $2.93. With the June 1996 ($5.47) price included, the 20-year average price was $3.05. During the 20-year period 1985 through 2004, average monthly June wheat prices have ranged between $2.31 (1999) and $3.87 (1989). (Note that the $5.48 June 1996 price is being ignored.) For 14 out of the 20 years, the average June price was below $3. These average prices indicate there is about a 50 percent chance the 2005 monthly average June wheat price will be above $3 and a 50 percent chance than it will be below $3. Based on the last 20 years, there is about a 20 percent chance wheat prices will be below $2.50 and a 20 percent chance that wheat prices will be above $3.50. Based on the above price information, what price would you accept for June 2005 delivered wheat? Given that the government loan is $2.75, it is only a 25-cent gamble to hold out for $3 or better. Using a minus 35-cent basis, the KCBT July ’05 wheat contract price must be $3.35 for the market to offer $3 for June 2005 delivered wheat. One way to develop a marketing strategy for 2005 wheat is to set prices to sell the wheat. For example, you could decide to sell one-fourth of the wheat at $3.25, one-fourth at $3.50, one fourth at $3.75 and the remainder at $4. Between now and harvest, you would watch the KCBT July ’05 wheat contract price and subtract 35 cents to convert it to central Oklahoma or the Texas Panhandle. A KCBT July ’05 contract price of $3.65 indicates the opportunity to forward contract for $3.25. A better basis to use would be to ask your local elevator what basis is being used to determine the June 2005 forward contract price. U.S. wheat ending stocks are projected to be about the same as last June. The Oklahoma/Texas Panhandle average June 2004 wheat price was $3.47. If something happens to the 2005 U.S. winter wheat crop, June 2005 wheat prices could be near last year’s levels. It is not possible to accurately predict the June 2005 wheat price. What is important is you understand which prices are likely to occur and to develop a written plan to sell the wheat. Hobbs is Oklahoma Cooperative Extension Service area agricultural economics specialist.
MGR Archive 27.12.2004
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Region Type Price  
Russia Rapan $ 700
USA Jupiter Rice $630
USA Calrose #1 $830
USA Calrose #1 Paddy $480
EU Prices Baldo €660
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