STILLWATER, Okla. — In early November, wheat prices fell 53 cents in three days. In the following three days, wheat prices gained 40 cents. Wheat prices appear to be trending lower. Why?

Also, with U.S. wheat ending stocks predicted to be the lowest since 1973, why aren't wheat prices higher? There are several explanations, but I think the main reason is China.

Before examining China's influence on wheat prices, note that wheat prices should remain volatile until next June and longer if the U.S. wheat crop is below average.

Key Kansas City Board of Trade (KCBT) March wheat contract price levels to watch are $4 and $4.50. $4 is probably the most critical. If wheat prices break $4, prices will continue the price downtrend.

China's price influence goes back to 1973 when China first entered the U.S. wheat market. From that point on, wheat prices tended to increase when China bought U.S. wheat. China's wheat imports have fallen from 583 million bushels in 1990-91 to a projected 36 million bushels in 2002-03.

In USDA's November 2002 world wheat supply and demand report, China's ending wheat stocks were adjusted from the 1990-91 marketing year through the 2002-03 marketing year. The 2002-03 marketing year ending stocks projection was raised from 710 million bushels to 2.28 billion bushels, a 321 percent increase.

China's 10-year average ending stocks were raised 3.7 percent and the five-year average was raised 4.4 percent.

Several troubling facts were revealed in USDA's report.

First is that higher stocks lower the odds that China will import U.S. wheat. There is a significant difference between 710 million bushels and 2.28 billion bushels.

China's five-year average production is 3.97 billion bushels and average consumption is 3.9 billion bushels. China's wheat stocks-to-use ratio was raised from 17.6 percent (710 million bushels divided by 4.04 billion bushels) to 58.5 percent (2.28 billion bushels divided by 3.9 billion bushels).

The second troubling fact is that the increased stocks were the result of lower consumption. Before the November report, China's 2002-03 wheat consumption was estimated to be 4.04 billion bushels. 2002-03 marketing year consumption was lowered to 3.9 billion bushels. Production is projected to be 3.38 billion bushels. With lower production than consumption, stocks are still expected to decline this year but from a much higher level.

After the 53-cent "knee jerk" reaction, the market realized that USDA lowered the U.S. ending wheat stocks estimate to 350 million bushels. This is the lowest since 1973's 340 million bushels.

USDA projected total foreign wheat ending stocks to be 6 billion bushels, compared to a five-year average of 6.58 billion bushels. The foreign stocks-to-use ratio is projected to be 29 percent compared, to a five-year average of 33 percent. U.S. wheat stocks are tight. Foreign wheat stocks are only slightly below average.

Higher U.S. wheat prices are largely dependent on exports. China was a potential importer of U.S. wheat. That potential appears to be gone, at least for the next few years. There also appears to be adequate foreign wheat stocks to meet foreign wheat demand.

There may be some wheat price rallies, but it appears that the price top has been made and that prices will trend down between now and harvest. The KCBT July 03 wheat contract price is expected to be $3.50 on June 20, 2003.