Corn futures contracts are traded on the Chicago Board of Trade and have the same monthly contracts as wheat. Wheat futures contracts are traded on the Chicago Board of Trade (CBT), Kansas City Board of Trade (KCBT), and the Minneapolis Grain Exchange (MGEX).
The CBT wheat contract is mostly based on the value of SRW wheat. The KCBT wheat contract is based on HRW wheat value. The MGEX contract is based on HRS wheat value. Hard spring wheat has higher protein than HRW wheat, which has higher protein than SRW wheat.
At this writing, the CBT Dec. corn contract price is $6.50. The CBT Dec. wheat contract price is $6.31. The KCBT Dec. wheat contract price is $7.25. The MGEX Dec. wheat contract price is $9.18. Corn prices are at a premium to SRW wheat prices, but not to HRW or HRS wheat prices.
In Oklahoma and the Texas Panhandle, cash wheat prices are mostly higher than cash corn prices. At this writing, Oklahoma wheat prices are significantly above corn prices, except in the Panhandle. At Hooker, Oklahoma, and Keys, Kansas, the corn price is $6.80 compared to a wheat price of $6.75.
In the Texas Panhandle, wheat prices are mostly 10 to 15 cents above corn prices. The wheat bid is for ordinary (11 percent) protein wheat.
The difference between CBT, KCBT and MGEX wheat contract prices is mostly the value of protein. For the Kansas City HRW wheat market, the basis for 11 percent protein is about 35 cents. The basis for 12 percent protein is about $1.05; for 13 percent protein, it is $1.33; and for 14 percent protein, it is $1.83.
At the same time in 2010, the Kansas City basis for 11 percent protein was a minus 35 cents. The basis for 12 percent protein was 10 cents, and the basis for 13 percent protein wheat was 30 cents. The HRW winter wheat basis is about 70 cents higher than in 2010.
The protein premium is also prevalent in the world market. Australia’s 2011 wheat harvest has just begun, and concern exists about the protein content. A report indicated that buyers are paying a $2 premium for export wheat with 13 percent protein.
In most markets, 11 percent or higher HRW protein wheat will not be priced lower than corn and will not be used in the feed market.
Protein basis does not suggest that wheat prices will remain at current levels. World wheat stocks are above average. Protein wheat stocks are relatively tight. Wheat prices, for wheat with less than 11 percent protein, may decline while wheat prices for wheat with relatively high protein may maintain current levels.
An example is the KCBT wheat contract price compared to MGEX wheat contract prices. On April 27, 2011, the KBT Dec. wheat contract price was $9.57, and the MGEX wheat contract price was $9.59. At this writing, the MGEX Dec. contract price is $9.18 versus $7.25 for the KCBT Dec. contract.
The odds are that the protein premiums will remain into the 2012 U.S. winter wheat harvest. Higher protein levels should result in higher basis and higher local cash prices.
Drought conditions are forecast to continue in parts of Texas and Oklahoma. Some of the drought area has sufficient moisture to establish a wheat stand. Protein should remain an important price component at harvest. This is NOT a good time to skimp on nitrogen applications.
LONDON, Ohio — Expect the bumpy ride in the grain markets to continue through the end of the year.
That was the consensus as Dr. Matt Roberts talked about the grain markets at the Farm Science Review.
The ag economist emphasized that anyone involved in the commodity market has to keep his attention on just about everything.
“There is nothing you can ignore. Everything that can affect the grains markets is,” said Roberts.
Factors such as the state of the harvest, the late planting, the conditions at pollination and the weather all affect whether the markets go up or down.
And another major factor influencing the market is comments and actions by Federal Reserve Chairman Ben Bernanke.
Roberts gave this example: On Sept. 21, Bernanke said there were significant downside risks to the U.S. economy. His comments influenced the market enough to cause prices to fall overnight and into the next day. Corn fell 20 cents overnight and soybeans fell 30 cents.
World market
Roberts said it is estimated that there is a one in three, or one in two chance that the United States could slip into another recession because of world events, and said the Greek debt crisis is also a contributing factor to the wild ride in the grain markets.
Germany and the European banks are some of the largest holders of the Greek debt and if they are not able to balance their books, then the residents in those countries could be affected, which would mean cutbacks in budgets. Basically, Roberts explained, this is interpreted as not as many livestock to feed, so less grain is needed.
And one other area of the world to keep an eye on is China. Roberts said if the European Union and the United States would slip into a recession it may mean that China may need less grain because its economy may not grow as quickly as it is now. This may mean fewer Chinese consumers will be able to afford the quality of food they now have — which would mean less grain for livestock and possibly less soybeans for the rest of their diet.
In short, Roberts said if the global economy slips back into a recession then the demand for grain could fall and so could the price.
However, Roberts said there is some positive news people can take from the markets — it is obvious that when there are economic doubts worldwide, people still lean toward America.
“When things go sideways in the world, people still put their trust into the U.S.A.,” said Roberts.
Hold on
The grain market guru, as Moderator Stan Ernst called Roberts during the seminar, said anyone watching the market can expect a tremendous amount of volatility in the next few months, maybe even the next couple of years.
High still to come
One question raised by the “Question the Authorities” audience was what to do if you have unsold corn from the harvest of 2011.
Roberts said he expects there to be at least one more opportunity to hit a high price. He expects corn to top $6.40 a bushel again and maybe even $7 some time in December. However it will happen before Jan. 15.
“Don’t look to store it. This is not going to be the case this year,” said Roberts.
He said there will be two events that will trigger higher grain prices.
One will be in October when the FSA releases their acreage reports and the resulting USDA NASS reporting, and then again around Thanksgiving when the government begins to bid for between 93- 96- million acres of corn.
“Don’t get greedy on this. Remember bulls get fed and hogs get slaughtered,” said Roberts.
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