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Market Analysis

Friday, August 17, 2018

   Since July 2, KC September wheat contract prices have moved from $4.94 to $6.14 (+$1.20), back down to $5.62 (-$0.52) and back up to $5.91(+$0.29 and net +$0.97). During the same period, cash prices (Burlington, OK) went from $4.76 to $5.89 and are (at this writing) at $5.48 (net + $0.72). The basis declined 25 cents (partial loss of protein premium). Russian exports may be setting the world wheat price.

   Reports indicated that Russia delivered wheat to Egypt for $6.33 (fob-free on board vessel) plus 44 cents ocean freight ($6.78 c&f). This is equal to about $5.98 (fob) at the Texas Gulf. To compete, Oklahoma wheat prices would need to be near $4.94 minus gulf elevator handling and loading costs.

   The world wheat supply and demand situation supports higher prices. World wheat ending stocks are projected to be 9.5 billion bushels (bb) compared to 10 bb last year and a five-year average of 8.2 bb. If China's wheat stocks are removed (China neither imports nor exports much wheat), world wheat ending stocks are projected to be 4.5 bb compared to 5.4 bb last year and a five-year average of 5.2 bb. Available world wheat stocks have tightened up.

   Australian wheat production (harvest starts in October) is projected to be 808 million bushels (mb) compared to 783 mb last year and a five-year average of 941 mb. Two below-average crops in a row have lowered Australia's presence in the hard wheat export market. Argentina's production is projected to be 716 mb compared to 661 mb last year and a five-year average of 530 mb.

Risk Management Strategies

Friday, August 17, 2018

   With wheat price near $5.50, now may be a good time to sell a percentage of the wheat. There is a possibility for higher prices but there is also a potential for prices to decline 75 cents. "Dollar cost averaging" (selling equal amounts over time) tends to work well for tension-free marketing.

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."