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Market Analysis

Monday, October 1, 2018

   Price wise, the USDA's Small Grains 2018 Summary was negative to neutral and the stocks report was negative. All wheat production was increased 7.67 million bushels (mb). Hard red winter wheat production was increased 1.0 mb. All wheat stocks were up five percent from last year. Oklahoma's wheat stocks were 8.7 mb higher than last year. Kansas wheat stocks were 21.5 mb higher than last year.

   Good news is that Russia, Ukraine, and Kazakhstan's 2018/19 wheat marketing year supplies are 14 percent (647 mb) less than for the 2017/18 marketing year. Uncertainty about Russian, Ukrainian, and Kazakhstani wheat production, wheat quality, and potential exports are becoming clearer, which should reduce price volatility.

   Australia's wheat harvest will start in mid-October. Australia is projected to harvest 735 million bushels (mb) compared to 783 mb last year and a five-year average of 914 mb. Argentina is projected to produce 716 mb compared to 661 last year and a five-year average of 530 mb.

   Export demand is the key to U.S. wheat prices. The value of the dollar compared to competing countries' currencies has been declining. There is also a relatively good chance that Russia may limit wheat exports. The question is when and how much of potential export sales the U.S. gets. The odds are that wheat prices will get back to the $5.50 to $6 level by the 2019 U.S. wheat harvest.

Risk Management Strategies

Monday, October 1, 2018

   There is strong KC December wheat contract price support at $5 and resistance at $5.35 and $5.60. Selling a percentage of stored wheat is a strategy to be considered. Another strategy is to establish price targets and kill dates. For example, the rule may be, "sell 5,000 bushels if the cash price reaches $5.29 or October 20." If the price reaches $5.29 before Oct 20, 5,000 bushels will be sold. If the price doesn't reach $5.29 by October 20, 5,000 bushels will be sold on October 20. Upon the sale of the 5,000 bushels, another target price and kill date is set for a set number of bushels.

Kim's Soap Box: Is there a way to "beat the system?"

   Date updated: Friday, April 10, 2009 (archives)

   There just has to be a way to know when to sell wheat and when to store it. In reviewing some old files, I found a one-page guide on how to determine which marketing strategy to use at harvest. The strategies included sell cash, hedge, store, and option strategies. The signals were if the basis and/or the KCBT Dec futures price were above or below normal. I collected cash prices, basis and futures prices from 1970 to present and evaluated the signals. The result was that the basis is a relatively good indicator if a storage hedge will work. The futures price was useless as a signal.

   The research is not complete, but my expected conclusion has been published by Carl Zulauf (Ohio State University) and Scott Irwin (University of Illinois), "With few exceptions, the field crop producers who survive will be those who have the lowest cost of production because efforts to improve revenue through better marketing of the commodity produced will meet with limited success over time."..."A good marketing program starts with a good program for managing and controlling the cost of production."