The Enid News and Eagle, Enid, OK

October 12, 2013

Wheat prices rally, but will it continue?

By J.C. Hobbs, Extended Forecast
Enid News and Eagle

ENID, Okla. — As of this writing, the past two weeks have been good for wheat prices.

Since Sept. 24, prices have risen 65 cents per bushel and likely will go higher if the Kansas City December contract price can break through the $7.60 resistance level. The next price target should be $7.80.

The wheat price rally is being sustained on the fact wheat stocks have been reduced due to higher feed use and increased export demand. In the Sept. 26 wheat exports report, all U.S. wheat export sales were 38 percent higher than this time last year. Hard red winter wheat export sales were 33 percent higher.

United States hard red winter wheat ending stocks for the 2013-14 marketing year are projected to be 197 million bushels, compared to 343 million bushels last year. The five-year average is 337 million bushels. All U.S. wheat ending stocks for the 2013-14 wheat marketing year are projected to be 561 million bushels, compared to 718 million bushels last year, and a five-year average of 791 million bushels.

Relatively tight wheat stocks and relatively strong export demand should support hard red winter wheat prices. Wheat harvest in the Northern Hemisphere is essentially complete.

For hard red winter wheat prices to continue the uptrend, Southern Hemisphere wheat production needs to be equal to, or less than, current expectations. The market will be watching the wheat crops of Argentina and Australia. Frost or freeze damage was reported in Argentina but the impact is uncertain. The market also will be watching the planting and development of the 2014 U.S. hard red winter wheat crop.

A big question is, “What is the impact of the government shutdown on market prices?” The major change is government-provided market information, which is not available. Large firms have quite a bit of the wheat situation information and the markets will continue to function.

The problem is less information implies more uncertainty and thus, more price risk. Players in the market must be compensated for taking more risk, which should result in a slightly lower price than without the shutdown. However, there is no proof of this analysis; it is just based upon economic logic. When the data becomes available, there may be a knee-jerk reaction with prices.

A sound marketing strategy, irrespective of what happens, is to sell wheat in specified percentages as prices increase. If you have not sold all of your wheat, consider selling another 10 to 15 percent on this price rally. With record world wheat production and record U.S. corn production there is still downside price risk.

With a strong basis, selling all the wheat and buying Kansas City December wheat futures contracts also may be a good strategy to capture any price increases that occur before the end of the year.

Hobbs is Oklahoma Cooperative Extension Service assistant specialist for Garfield County.