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Market Analysis

Friday, January 30, 2015

   The KC March wheat contract price broke the $5.60 support and the next target may be $5.15. There are signs that the contract price decline may stall out at $5.33. It the March contract price closes below $5.33 on Monday February 2, the odds of seeing a $5.15 March contract price increases dramatically.

   Reasons for the price decline include moisture on most of the hard red winter (HRW) wheat area, above average world wheat stocks and stocks-to-use ratios, and the relatively high value of the U.S. dollar. There is adequate topsoil moisture over most of the HRW growing area and moisture received this week in the Texas Panhandle helped. There is a shortage of subsoil moisture in most of the HRW area.

   As long as the value of the U.S. dollar continues to increase, wheat price will be negatively affected. At 95.1, the U.S. dollar index is the highest since September 2003. In February 2002, the dollar index reached 120.55. Twenty-five points is a potential 26 percent increase in export wheat cost. Since late June, Oklahoma wheat prices have declined from about $7 to about $5.20. About $1.28 of the $1.80 price decline may be applied to the higher dollar index. About $0.52 may be applied to changes in the supply and demand conditions. Without the change in the dollar index, Oklahoma wheat prices could be $6.48.

   During the next three months, weather is expected to be the major price factor. The NOAA three-month forecast is for below average temperatures in the Oklahoma/Texas area. The precipitation forecast is for slightly above average moisture in the Texas/Oklahoma Panhandle regions and for average moisture in most of Oklahoma. With limited subsoil moisture, timely precipitation will be critical.

Risk Management Strategies

Friday, January 30, 2015

   If you have wheat in storage, take advantage of any price rally. June 2015 Oklahoma cash wheat prices are expected to be near $5.50. A relatively large crop could result in $5 cash prices or a short crop, $6.00. The market is currently offering about $5.10 with a range from $4.95 to $5.40, depending upon location.

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."