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Market Analysis

Friday, October 4, 2019

   The KC wheat contract price traded above $4.10 for two days which sent a false signal that the $4.10 resistance price level had been broken. With market chatter about France underpricing the Black Sea exporters for another cargo of wheat to Egypt and the Black Sea Exporter's bid being below U.S. hard red winter prices, KC wheat contract price went back below $4.10. Resistance is at $4.10 and about $4.15.

   Argentina is projected to harvest a record wheat crop. However, continued dry conditions may reduce Argentina's wheat production. Excess rain in North Dakota and Canada is reported to be lowering both quality and quantity of hard red spring wheat. Both of these events could result in higher prices. The problem is projected world wheat production and ending stocks. Good news is that the world and U.S. wheat stocks-to-use ratio is projected to decline.

   France under-bid Russia for wheat sold to Egypt. The reported FOB (on board vessel) wheat price was $194.64/mt ($5.30/bu) and $211.98/mt ($5.77/bu) C&F (costs and freight). The equivalent FOB soft red wheat price out of New Orleans would be about $4.95. The current New Orleans SRW wheat price is $5.36. Every bushel that Russia doesn't sell to Egypt, indicates another bushel for sale to other importers that may be U.S. hard red winter wheat customers. Another report indicated that Argentina will harvest a record wheat crop. Argentina is a direct U.S. wheat export competitor.

   With potentially higher Russia and Argentine wheat production and projected record world wheat production and ending stocks, and with relatively high corn production, the odds of significantly higher wheat prices are relatively small.

Risk Management Strategies

Friday, October 4, 2019

   Ten out of the last 11 years, wheat should have been sold before September 30. If producers want to stay in the wheat market, consider selling wheat and buying March 420 call option contracts.

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."