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KIM'S SOAP BOX

Market Analysis

 
Friday, June 23, 2017
(archives
)

   Since late April, cash wheat prices have increased about $1 per bushel. Of the $1 higher cash price, 54 cents is due to a higher KC wheat futures contract price increase and 43 cents is due to a higher basis. The higher basis is an indicator to sell wheat. The KC September wheat contract price ($4.88 at this writing) has resistance at $5.07 and needs to close above $5.07 to continue the uptrend. The Sept contract has price support at about $4.80.

   A report out of Kansas indicates yields well above expectations, protein in the 12.5 plus range and relatively low test weight. Sounds like the perfect wheat to blend with Oklahoma wheat with test weights above 60 pounds and relatively low protein. As the harvest progresses through Kansas we'll see how yields, test weight and protein turn out.

   Hard wheat producing countries include Argentina, Australia, Canada, Kazakhstan, Russia, Ukraine, and the U.S. Only Argentina is projected to have higher wheat production in 2017/18 than in 2016/17 (3%). Average 2017/18 production for all these countries is projected to be down 13 percent. A problem is that higher beginning stocks offset much of the lower production. Lower production does set the stage for slightly higher price and for significantly higher prices in 2018/19 (requires lower production in 2018/19).

Risk Management Strategies

 
Friday, June 23, 2017
(archives
)

   Oklahoma wheat prices could fall $1.25 or increase $2.50. Prices will fall if the foreign wheat crop ends up higher than expected. Lower prices would be the result of lower foreign wheat production and/or less than expected corn production. Consider selling one-third of the wheat now, one-third during the September/October time period and the final one-third in November/December.

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."