The Enid News and Eagle, Enid, OK

November 9, 2013

Just how high can wheat prices go?

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

ENID, Okla. — Wheat prices have been reacting to production reports from the southern hemisphere.

Production in Argentina and Australia is expected to be slightly below average as harvest is just now beginning. In Argentina, wheat has been reported to be selling for $17 per bushel. Argentina also is not expected to begin exporting wheat until after Jan. 1, 2014.

As we approach the completion of wheat harvest in the northern hemisphere, Canada has harvested a near record wheat crop that was well below average in the level of protein. In addition, Russian wheat production is projected to be slightly above average; however, Russian wheat exports are expected to be limited. The Russian government is purchasing wheat to replace stocks that were sold because of 2012’s low wheat production, which was 30 percent below average thus keeping it off the export market.

These situations have resulted in Oklahoma and Texas wheat prices increasing to levels above those experienced in late June of 2013. On June 21, the price in central Oklahoma was about $7.35 per bushel, and prices in the Texas Panhandle were near $7.15 per bushel.

By the first of July, Oklahoma wheat prices had declined to $6.78 per bushel. The market signals at that time was wheat producers were urged to sell their wheat as it crossed the scales. Between July 1 and Sept. 25, the Oklahoma cash price had ranged between $6.72 and $6.91 per bushel. Oklahoma wheat prices were above $7 on Sept. 25 and reached $7.50 by late October.

Currently, there are signals that wheat prices have peaked. The market is extremely interested in Australia and Argentina’s wheat production, U.S. corn and soybean production, and world wheat ending stocks. Additional price increases will require less than expected production and/or poor quality in Argentina, Australia or both. These harvests will not be complete before late-December. Until harvest has been completed, wheat prices will continue to fluctuate.

Argentina’s $17 wheat prices have been factored into the market. Unless Argentina’s and/or Australia’s wheat productions are significantly less than expected and/or U.S. 2014 winter wheat production expectations are well below average, wheat prices are not expected to increase more than another 50 to 60 cents per bushel.

In my opinion, there is a 35 percent probability that wheat prices have peaked. Thus, there still is some upward potential but it just may not be a large amount.

At the present time, producers may want to consider having about 75 percent of the 2013 harvested wheat sold in the near future. With record world wheat production and record U.S. corn production, there still is downside price risk for wheat. With a strong basis, selling all your stored wheat and buying Kansas City December wheat futures contracts also may be a good strategy to use to capture any price increases that occur before year end.

It is extremely likely most of the price increase will be reflected in increases on the Kansas City Board futures contracts.

Hobbs is Oklahoma Cooperative Extension Service assistant extension specialist.