KANSAS CITY — The world has plenty of wheat, and supplies in the United States itself are bountiful. Growers worldwide demonstrated during the past couple of years that when prices are high and weather permits, wheat production may be increased dramatically even from one year to the next. But despite the largest U.S. wheat supply since 2001-02 and no significant supply concerns in the rest of the world, U.S. wheat futures prices have found it difficult to break and hold below $5 a bu as wheat fundamentals proved to be but one feature, albeit the most important feature, of a mix that influences prices.

On any given day, those trading wheat must weigh wheat supply and demand factors against myriad other influences often demanding equal or even greater attention, including the value of the U.S. dollar, the price of crude oil, the direction of equity markets, the status of the U.S. and world economies and the attitudes and strategies of new categories of market speculators.

“When I started in this business, everything revolved around supply and demand,” remarked Steve Freed, vice-president, ADM Investment Services Chicago. Mr. Freed said in the 1990s, people started to speak more about technical trading and money less connected to underlying supply and demand began to flow into the market. “Then in 2006 and 2007, we brought in a whole new crowd of investors that really doesn’t know much at all about the market’s fundamentals.” Today, a wheat analyst must look broadly into the U.S. and world economies to discern all the influences that may sway wheat prices.

Paul Meyers, vice-president of commodity analysis, Connell Purchasing Services, Berkeley Heights, N.J., agreed, saying, “It seems like outside markets have had a large, pervasive impact on wheat, especially during the past several weeks. The dollar index recently dropped to its lowest level in more than a year, crude oil traded above $80 a barrel, which has influenced commodity fund buying, and commodity prices generally seem to be trending higher.

“Gross domestic product numbers show the U.S. slowly emerging from recession, and G.D.P. trends in other nations are favorable as well. Resumption of world economic growth engenders a more bullish notion of the value of commodities that may outweigh the huge supply of wheat in the U.S. and around the world.”

To the extent they are heard above the din of discussions about financial and equity markets, crude oil and metals, economic recovery or nagging concerns about the possibility of a double-dip recession and increased government regulation, wheat fundamentals seemed to make a powerful case for lower prices.

The U.S Department of Agriculture on Nov. 10 projected the U.S. carryover of wheat on June 1, 2010, at 885 million bus, up 228 million bus, or 35%, from 657 million bus in 2009 and nearly triple the 2008 carryover of 306 million bus. The 2008 wheat carryover was the smallest since shortly after World War II. At 885 million bus, the June 1 U.S. wheat inventory in 2010 would be the largest since 950 million bus in 2000.

The U.S.D.A. estimated U.S. wheat production in 2009 at 2,216 million bus, down 283 million bus, or 11%, from 2,499 million bus in 2008. Wheat imports during the 2009-10 marketing year were projected at 110 million bus, down 17 million bus from 2008-09. But total wheat supply in the United States in 2009-10 was projected at 2,983 million bus, up 52 million bus from 2,932 million bus during the previous year. The current year’s wheat supply was projected to be the largest since 3,268 million bus in 2000-01.

At the same time, wheat disappearance was forecast lower than a year ago. Domestic wheat use in 2009-10 was projected at 1,223 million bus, down 37 million bus from the previous year. Food use of wheat was projected at a record 955 million bus, up 30 million bus from 2008-09. Seed use of wheat was projected at 78 million bus, up 3 million bus from 2008-09 but down 10 million bus from 2007-08, when historically small wheat inventories and record prices encouraged growers to plant more wheat than in any other crop year since 1999-00. Feed and residual use of wheat in 2009-10 was projected at 190 million bus, down 70 million bus from the previous year and compared with only 16 million bus during the 2007-08 marketing year.

The U.S.D.A. projected U.S. wheat exports in the current year at 875 million bus, down 14% and 31%, respectively, from outgoes of 1,015 million bus in 2008-09 and 1,263 million bus in 2007-08. It would be the lowest export total since 850 million bus in 2002-03. A factor was the overall decrease in world trade in wheat from the record 2008-09 international marketing year, but U.S. exporters also were facing stiff competition from other suppliers, particularly Black sea nations. The U.S.D.A.’s initial forecast for U.S. wheat exports this year issued in May was 900 million bus.

At a world level, wheat supplies continued on a remarkable recovery from the extraordinary tightness that prevailed just a couple of years ago.

The U.S.D.A. projected world wheat ending stocks for 2009-10 at 188.28 million tonnes, up 23.52 million tonnes, or 14%, from 164.74 million tonnes in the previous year and up 67 million tonnes, or 55%, from the 26-year low of 121.28 million tonnes in 2007-08. The 2009-10 world wheat ending stocks would be the largest since 203.18 million tonnes in 2001-02.

World wheat production was projected at 671.89 million tonnes, down 10.86 million tonnes, or 2%, from a record 682.75 million tonnes in 2008-09 with most of the decrease from the previous year attributable to the smaller U.S. crop.

World wheat use in 2009-10 was projected at a record 648.35 million tonnes, up 9.06 million tonnes, or 1%, from the previous record of 639.29 million tonnes in 2008-09. World wheat exports in 2009-10 were projected at 125.32 million tonnes, down 16.97 million tonnes, or 12%, from a record 142.29 million tonnes in 2008-09.

The world wheat ending-stocks-to-use ratio for 2009-10 was projected at 29% compared with 25.8% in 2008-09 and 19.6% in 2007-08. The 2007-08 stocks-to-use ratio was the tightest in records extending back to 1960-61.

Supply-and-demand trends in other key agricultural markets seemed to offer few obstacles to lower wheat pricing. The U.S.D.A. projected 2009 soybean production at a record 3,319 million bus and domestic soybean supplies in 2009-10 at a record 3,465 million bus. The department projected 2009-10 soybean ending stocks at 270 million bus, nearly double the 138 million bus held in store on Aug. 31, the end of the 2008-09 marketing year.

Corn was more problematic but not severely so. Corn production this year was projected at 12,921 million bus, up 7% from 12,101 million bus in 2008 but down 1% from a record 13,038 million bus in 2007. While 2009-10 corn ending stocks forecast at 1,625 million bus were 47 million bus below the previous year, they compared with 1,624 million bus in 2007-08 and 1,304 million bus in 2006-07.

Mr. Meyers said even though wheat futures prices have had a good counter-fundamentals rally in the past few weeks, a setback of 40c to 60c a bu was possible, especially if corn and soybeans weaken and U.S. wheat exports remain sluggish. At the same time, he said it was important not to get too bearish when looking at the fundamentals.

He pointed out the Federal Reserve recently announced it might keep interest rates low for an extended period. This should keep pressure on the dollar, whose value has been trending lower since March. The dollar index, which is traded on the ICE and measures the value of the dollar against a basket of other world currencies, traded at about 75 points last week compared with 88.5 in early March. Mr. Meyers said the dollar index might encounter significant support only at 71 or 72 points.

Meanwhile, commodity prices have been on the rise. Reuters Jeffries/CRB Index futures (reflecting 19 commodity futures contracts) traded on the ICE has risen 33% from its March lows. Crude oil has advanced to trade above $80 a barrel and probably has established a range of $75 to $90 compared with $60 to $70 projected just several weeks ago, Mr. Meyers said.

Mr. Freed said if energy prices don’t buckle and the dollar doesn’t rally, it will remain difficult for wheat prices to break and hold below $5 a bu.

Mr. Freed pointed to continued economic growth in China. Strong growth and demand for commodities and energy in that country contributed greatly to the run-up in commodity prices, including wheat and the other agricultural markets, in the lead up to the current economic crisis. Mr. Freed said reports out of China suggested that country would continue to import soybeans heavily and soon may import corn in greater volume.

“Those are big deals,” Mr. Freed said.

Mr. Freed said money flow into commodities was expanding again and was supportive to prices. While the lion’s share of new speculative capital was apportioned to energy, financials and metals, should the money flow continue to expand, agricultural markets will receive their fair share.

Both Mr. Meyers and Mr. Freed noted recently the Commodity Futures Trading Commission seemed to be taking a more deliberate approach to expanding regulation of participants in the futures markets. Worries the C.F.T.C. would act quickly generated ideas a pull out of capital from

markets by index traders itself might become a major market factor.

Looking forward, while the outlook for the Australian crop currently was good, with the U.S.D.A. forecasting a crop of 23.5 million tonnes in that country compared with 21.5 million tonnes the previous year and a drought-reduced outturn of 13.8 million tonnes in 2007-08, an El Nino weather pattern was developing, and that might result in excessively dry conditions in the drought-prone nation, Mr. Freed said.

Both Mr. Meyers and Mr. Freed expected the late fall crop harvest in the United States and quality problems with the 2009 soft wheat crops probably would result in fewer acres planted to soft wheat this year in the key Central states. Last year, producers planted around 8.4 million acres to soft red winter wheat. Several analysts suggested soft red winter area this year would fall below 7 million acres and even be closer to 6 million acres.

While a smaller winter wheat planted area might be supportive to futures prices, Mr. Meyers noted with the large carryover projected for 2010, wheat supplies in 2010-11 should be adequate.

At the same time, a number of cookie-cracker and specialty bakers and other users requiring soft wheat, considering quality deficiencies in the 2009 crop and likely smaller production in 2010, have extended futures coverage deep into 2010 and were discussing with suppliers strategies to ensure they received the quality and quantity of soft flour they will require in the next several months.

Mr. Meyers said should wheat

futures prices set back, prices might trade around $4.75@4.90 in Chicago, 10c higher in Kansas City and another 15c higher in Minneapolis. Mr. Freed said he expected Chicago wheat futures soon to trade above K.C. wheat contracts. He suggested a likely range for both Chicago and Kansas City May wheat was $5@5.70 a bu, and a likely range for Minneapolis May wheat was $5.20@5.80 a bu.

The value of protein was evident in cash wheat premiums on both hard red winter wheat and hard red spring wheat. U.S. Wheat Associates indicated the 2009 hard red winter wheat crop averaged 12.1% in protein, although the Kansas average was lower, at around 11.5%. The spring wheat crop averaged only 13.1% in protein, and at midweek last week, 15%-protein wheat was quoted $1.50 higher than 14%-protein wheat, and 14%-protein wheat was quoted $1.25 higher than 13%-protein supply.

Low-protein hard winter and hard spring wheat crops created or necessitated, in some cases, blending options, particularly in view of the generally good baking characteristics of flour milled from hard winter wheat and a weaker, more extensible dough produced from flour milled from hard red spring wheat than is typical.

“There is much more variability this year,” said a quality control director at a major milling company about the hard winter wheat crop. “Protein was down a little, but the crop is baking very well,”

Scott A. Syslo, vice-president of grain and risk management, ConAgra Mills, Omaha, added, “We have a very large spring wheat crop, and there will be some substitution for hard winter among certain users.”

For a baker who typically buys a 100% hard winter mix, there might be a shift to perhaps 20% spring wheat, and an 80%/20% (hard winter/spring) user may move to 60%/40%, Mr. Syslo said.

The millers were not as upbeat about the soft red or in hard spring wheat crops.

“Soft red was probably the big disaster,” the quality control director said. “An awful large area of the country had scab,” he said, mentioning the Southeast, eastern shore, Northeast and portions of the Central states.

Mr. Syslo said Ohio was “one bright spot” for soft red quality. Another miller added northern Indiana as a source of good-quality wheat. Overall, soft red basis levels were considerably higher than normal, he said, suggesting bakers “book the basis through June” promptly and watch 2010-11 markets closely for buying opportunities.

For high-gluten spring wheat this year, the problem is one of quantity rather than quality. With average protein content of the 2009 crop down sharply, supplies of high-protein wheat are scarce.

“If you need high protein, 14% or better, it’s very pricey,” Mr. Syslo said. “I haven’t seen a lot of people trying to downgrade on price yet. It’s the 15% protein users who will be the most affected.”

The extent to which bakers will try to accommodate lower protein content in their flour by supplementing it with vital wheat gluten remains to be seen, he added.