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Market Analysis

Friday, October 24, 2014

   The KC December wheat contract price closed above the $6 resistance. The next resistance is at $6.20. Two consecutive closes above $6.20 will indicate a price target of $6.54. The KC Dec contract has established a short-run uptrend but appears to be trying to establish a sideways pattern with the tops near $6.16. Closes above $6.20 will signal that the long-run downtrend that was established in May has been broken.

   Positive news is lower U.S. wheat ending stocks (698 mb lowered to 654 mb), record high hard red winter wheat protein levels combined with well-below-average hard red spring wheat protein levels, plus below-average milling quality wheat in France and Germany and declining production expectations in Australia. Negative price news is that some analysts are projecting increased planted acres for the 2015 world winter wheat crop.

   Additional negative market news is the increasing value of the U.S. dollar relative to other major currencies, (which effectively increases the price of U.S. wheat on the export market), financial market weakness in much of the world's economies, and the Ebola problem in Africa with the potential impact on different economies. Another looming problem may be China's consumer debt. In 2005, $1 of Chinese additional debt increased GDP by about 90 cents. Last year, $1 increase in debt increased GDP by about 27 cents. China's current credit situation is comparable to that of Japan's in the early 1990's and the U.S. in 2007.

   Unless corn prices go in the tank (and I think the low price has already been established) and/or something major doesn't happen in the U.S. or world economies, U.S. wheat prices have established the bottom until late in the 2014/15 wheat marketing year.

Risk Management Strategies

Friday, October 24, 2014

   If you have a written marketing plan, follow it. Selling certain percentages of stored wheat on rallies may be a good strategy. Another strategy is to sell the wheat in 20 percent increments between now and January 1. Consider forward contracting, maybe, 10 percent of expected 2015 wheat production.

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."