This week, the KCBT March and July wheat contract traded from the top to the bottom of the current trading range. The March contract is trading between $4.80 and $5.05. The July wheat contract is trading between $5.05 and about $5.30. Both contracts finished the week near the support (bottom) price level. If the contract price breaks the support prices ($4.80 for March and $5.05 for the July), the next target price will be about $4.55 for the March contract and $4.80 for the July wheat contract.
Tuesday, February 9, the USDA releases the February crop supply and demand reports. The USDA may increase wheat exports and lower ending stocks by 15 million bushels. Lowering exports or not lowering exports will have essentially zero price impact. There is just too much wheat in storage. If the USDA makes a substantial change in the wheat demand estimate, there is an extremely low probability that the USDA will change supply; there would be a knee-jerk reaction to prices. The market is expecting little or no changes.
There is some concern about moisture and winter damage to the U.S. winter crop. The concerns are not widespread. The U.S. winter wheat crop has been planted, and relatively good stands have been established. Weather will determine wheat yields in the March through May time period.
There is an adage that the market kills the winter wheat crop several times. To date, I have not heard of one death. Will this be the year of no weather damage? I do not think so. There will be some price rallies. Take advantage of them. I still think that the Oklahoma June cash price will be $4.50. Wheat may be forward contracted in central Oklahoma for about $4.25 (a minus 85 cent basis was used).
If you're going to sell wheat out of storage, consider selling it in equal increments over the next two months. As for pricing 2010 harvested wheat, consider waiting until harvest or later. A strategy to consider for 2010 wheat is to sell one-fourth to one-third of the wheat at harvest and the remainder in late fall and early winter.
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."
