The KC December wheat contract continued to trade in a narrow range. The KC Dec contract has resistance near $4.20 and strong resistance near $4.30. The Dec contract has support at about $3.95. Hard red winter wheat export sales were reported to be 85 percent higher than last year. A shortage of milling quality wheat may develop later in the marketing year. If weather reduces the quality of Argentina and/or Australia's 2016/17 wheat, prices could gain 75 cents to $1. The Kansas City HRW protein premium was reported at about 55 cents for 12 percent and about $1.25 for 13 percent protein.
French soft red wheat production was down 30 percent from last year. Russia's wheat harvest is complete with production at 2.65 bb compared to 2.42 bb last year and a five-year average of 1.96 bb. Russia's wheat may be below average in protein and falling number.
Excess world wheat stocks are expected to restrict U.S. hard red winter wheat prices. Even though protein is below average, the 2016 U.S. hard red winter wheat crop has excellent milling qualities. The 2015 HRW wheat in storage at the beginning of harvest (446 million bushels (mb) U.S. and 40 mb Oklahoma) was of relatively poor quality and may need to move into the feed market. Reports indicate that the 2016/17 world wheat crop will have below average protein.
Hard red winter 2016/17 wheat ending stocks are projected to be 578 mb, the highest since the 1986/87 wheat marketing year. Oklahoma's 1986/87 marketing year average price was $2.28. The U.S. wheat average price was $2.42. USDA projects the U.S. 2016/17 average wheat price to be between $3.35 and $4.05 with a mid-range price of $3.70. Using the 1986/87 U.S./Oklahoma price spread, Oklahoma's projected price range is $3.21 to $3.91 with a mid-range price of $3.56. To date, Oklahoma's daily average price (June 1 to present) is about $3.25. The current average Oklahoma price (September 22) is about $2.90.
As long as the wheat is eligible for an LDP payment and the cash price stays below about $3.15, there is little difference in the net price (cash + LDP). Since the LDP is a five-day average, producers can take advantage of the fact that the LDP lags the cash price by a day or two. Note that storage and interest is about five cents per bushel per month. It doesn't cost much to store wheat and wait for higher prices.
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."