The Kansas City Board of Trade (KCBT) December wheat contract price is about 43 cents higher than the KCBT March contract price.
This implies that Kansas City wheat prices are expected to increase 43 cents between now and December.
The Chicago Board of Trade (CBT) December corn contract price is $1.36 less than the CBT March corn contract price. This implies that the Chicago corn price is expected to decline $1.36 between now and December.
Given that corn prices have been supporting wheat prices and given that the livestock industry continually evaluates the economics of feeding wheat instead of corn, can corn prices decline $1.36 while wheat prices increase 43 cents?
The market is telling us the hard red winter (HRW) wheat price will increase while corn prices decline. This market phenomenon is predicated on the premise that wheat stocks will continue to be relatively tight while corn stocks become abundant.
In the January USDA WASDE (World Agricultural Supply and Demand Estimates) report, U.S. wheat ending stocks were projected to be 716 million bushels. The five-year average is 791 million bushels.
World wheat ending stocks were projected to be 6.5 billion bushels compared to a five-year average of 6.9 billion bushels. Wheat stocks are projected to be below average but not by much.
United States corn ending stocks were projected to be 602 million bushels compared to a five-year average of 1.2 billion bushels.
World corn ending stocks were projected to be 4.6 billion bushels compared to a five-year average of 5.2 billion.
Corn stocks tight
Corn stocks are projected to be very tight in the U.S. and relatively tight in the world.
Hard red winter wheat planted acres were estimated to be 2 percent less than planted for2012. Essentially all the HRW wheat area is in designated drought conditions with the majority of the area in the highest two categories of drought.
The 90-day precipitation forecast is for below-average moisture in nearly all the HRW wheat area in Kansas, Oklahoma, Texas and Colorado. The 90-day forecast also predicts above- average temperatures.
Also in much of the HRW wheat area, the USDA crop condition ratings are the worst or nearly the worst on record. The odds are relatively high that 2013 HRW wheat production will be well below average.
The USDA estimates that soft red winter (SRW) wheat planted acreage is 16 percent greater than in 2012, which was 2.5 percent greater than in 2011. Moisture conditions are relatively good for most of the SRW wheat area.
Some analysts are predicting an increase in spring wheat planted acres compared to 2012. Moisture conditions are relatively good in the spring wheat areas. Increased spring and SRW wheat production may partially offset the expected reduction in HRW wheat production.
This implies that U.S. wheat stocks may remain near the five-year average. The five-year average wheat price in Oklahoma and Texas is about $6.50.
Some analysts are predicting that 2013 U.S. corn planted acres may be above 99 million acres. This may be compared to 97.2 million acres in 2012, 91.9 million in 2011, and 88.2 million in 2010.
Assuming that 91.5 percent of the corn planted acres is harvested and the yield is 149 bushels per acre (the five-year average), 2013 corn production will be 13.5 billion bushels.
The record U.S. corn use was 13 billion bushels. This would imply 2013/14 corn ending stocks of 1.1 billion bushels or higher.
Unless there is a complete disaster with the 2013 HRW wheat crop, Oklahoma and Texas wheat prices probably will not increase 45 cents, while corn prices fall $1.35.
The question is, when will wheat and corn prices fall dramatically?
The answer is probably in the August to September time period.