The wheat harvest has started in southern Oklahoma (and other southern areas). Yields are as expected – very low – and quality may be as expected – high 50s to low 60-lb. test weight. Listening to elevator managers and farmers, I get the feeling that Oklahoma wheat production may be slightly below USDA's 80.5-million-bushel projection.

The fact that wheat prices are increasing and USDA's crop rating report (down 7%); Kansas' wheat production may also be less than USDA's 340-million-bushel projection. Spring wheat planted acres may be significantly less than was expected. Plantings in Minnesota are 71% compared to a five-year average of 96%. North Dakota planted acres are 64% compared to a five-year average of 94%. Wheat production losses in Oklahoma and Texas have created a situation where additional losses could result in lower hard red winter wheat stocks and higher prices.

Reports also indicate that there may be production problems in Eastern Europe and Argentina. USDA projected a 27% decline in Ukraine wheat production. Irrespective of these reports, the fact remains that U.S. and world wheat stocks are relatively high and that the world's wheat stocks are expected to increase. There is excess wheat.

During the last month, Oklahoma region wheat prices have increased about $1.10/bu. Corn prices have increased between 45¢ and 50¢/bu. Soybean prices started increasing in early March and have increased about $2.50/bu. In short crop years prices tend to peak early. The Kansas City Board of Trade (KCBT) July wheat contract price challenged the $6.92 contract high price on May 28, only to close lower. The July contract price must break $7 for the uptrend to continue (and it did with the rally seen early last week, before prices broke two days later).

USDA projects the 2009-2010 wheat marketing year price to be in the mid-range of $5.20. This implies that wheat prices must decline. Without a reduction in production expectations, wheat prices are expected to peak in late June to early July. It is possible for prices to peak sooner than these dates.

This may be the year to sell up to one-half of the wheat at harvest and the remainder in September, October and November. Another strategy is to sell all the wheat and buy KCBT December call option contracts to cover a specified percentage of the wheat sold. If you cannot afford to risk lower prices, sell all the wheat and do nothing else.