The single most important step in marketing 2012 wheat may be purchasing crop insurance. Texas, Oklahoma, the southern half of Kansas, and southeastern Colorado are all suffering a severe drought. The long-term forecast indicates that the drought will continue.

Crop insurance rates will not be available until about Sept. 15. The insured price will be the average of the Kansas City Board of Trade (KCBT) July wheat contract daily close for the August 15 through September 14 time period. At this writing, the KCBT July ’12 wheat contract average close has been $8.50. If production loss occurs, $8.50 is not a bad price to guarantee for 70 percent of average production.

One note on prevented planting: word has it that RMA/USDA will not accept dry conditions as a reason for prevented planting. This implies that wheat must be “dusted-in’ by the final planting date.

For locations that receive sufficient moisture to establish a wheat crop, the market is offering, depending on location, between $7.50 and $7.90 for June 2012 forward contracted wheat. These prices were calculated by subtracting the forward contract basis (minus $0.70 to minus $1.10) from the KCBT July 2012 wheat contract price. At this writing the KCBT July wheat contract price is $8.60.

Given projected near average wheat stocks and relatively high price volatility, the June 20, 2012, cash wheat price is expected to be between $6 and $10. The odds indicate that prices will be above $8.

Market factors that will affect the 2012 wheat harvest price are U.S. wheat stocks, world wheat stocks, U.S. corn stock and 2012 U.S. wheat production. While all of these factors are uncertain, corn stocks and 2012 U.S. wheat production are the most uncertain.

Currently, the USDA projects that 84.4 million acres of corn will be harvested with an average yield of 153 bushels per acre. Corn production for 2012 is projected to be 12.9 billion bushels. Some analysts predict that yields will be closer to 152 bushels per acre, and production will be 12.8 billion bushels.

For 2011/12 marketing, corn ending stocks are projected to be 714 million bushels. Reducing production 100 million bushels reduces ending stocks to 614 million bushels. Tight corn stocks would result in an increase in soft red winter wheat used as feed and lower U.S. wheat ending stocks.

World wheat stocks are projected to be slightly above average, and U.S. wheat stocks are projected to be slightly below average. Near average stocks implies that above average 2012/13 wheat marketing year wheat production could result in Oklahoma and Texas wheat prices declining to $7 or less.

The current projected U.S. and world wheat stock situation also implies that the $7 or less wheat price probably would not occur until September or October 2012.  The 2012 U.S. winter wheat production will be needed to meet world demand in June and July 2012. The exception would be if Argentina and/or Australia’s wheat production is larger than expected.

Russian wheat exports

Another factor to watch is wheat exports from Russia, Ukraine, and Kazakhstan. Both Russia and Ukraine, especially Russia, have the goal of becoming major exporters. These countries produce hard wheat that competes with U.S. hard red winter wheat. Reports also indicate that Russia has been undercutting the world wheat price by $0.75 to $1.25 per bushel.

The U.S. and the world have about an average supply of wheat, and prices are relatively high.

Farmers, everywhere in the world, react to high wheat prices by increasing planted acres. If the weather cooperates, wheat production for the 2012/13 marketing year will be above average and 2012/13 prices will be lower than current prices.

Hard red winter producers in the Southern Plains need to insure production and income first. Because of yield uncertainty, price will probably not be a factor until a few months before harvest or when the wheat is in the bin.