September 23, 2010 Time to market some 2011 wheat?
The Southwest Farm Press Daily reports during the last two months Trading Funds’ KCBT wheat contract positions have acquired nearly 50,000 long contracts. Since mid-June, the KCBT Nearby wheat contract price has increased from about $5 to just over $7. Trading Fund purchases of about 55,000 wheat contracts are a major reason for the higher prices.
In the September 2009 USDA/WASDE Supply and Demand report, 2009/10 wheat marketing year U.S. ending stocks were projected to be 743 million bushels. World wheat ending stocks were projected to be 6.9 billion bushels. The projected U.S. 2009/10 marketing year average wheat price was $5.10.
The August 2010 USDA/WASDE Supply and Demand report projected 2010/11 U.S. wheat marketing year ending stocks to be 952 million bushels and world ending stocks to be 6.4 billion bushels. The five-year average U.S. wheat ending stocks is 670 million bushels and the five-year average world wheat ending stocks is 5.8 billion bushels.
U.S. wheat ending stocks above 900 million bushels and world ending stocks above 6.0 billion bushels may not support $7 KCBT wheat futures contract prices and $6 Oklahoma and Texas cash prices.
Major wheat harvests that may impact wheat prices include Canada, Argentina, and Australia. Speculation is that Russia may be a net wheat importer.
Kim Anderson with the Southwest Farm Press Daily suggests that current ending stocks expectations imply that during June 2011, KCBT July 2011 wheat contract prices may be around $6. Texas and Oklahoma cash prices are expected to be about $4.80. In comparison during the month of September 2009, the KCBT July 2010 wheat contract price averaged $5.18. The forward contract basis for 2010 harvest delivered wheat was about a minus 80 cents and the forward contract price for 2010 harvest delivered wheat was $4.38.
With KCBT July 2011 wheat contract price over $7, and the forward contract basis about a minus $1.25, implies a June 2011 forward contract price of $6. With about a 200 million bushel increase in U.S. wheat ending stocks (Sept 2009 vs. September 2010), how can the market justify offering $1.40 more for wheat?
It looks to me that producers may want to consider forward contracting a percentage of their expected 2011 harvested wheat at the next market bump if they haven’t started already. However if the 2011 wheat production is significantly below average, $6 wheat could be cheap.