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Market Analysis

Tuesday, March 24, 2020

   During the last seven trading days, wheat prices have increased between 62 and 67 cents. Wheat may be forward contracted for harvest delivery in Snyder, Oklahoma for $4.47, in Dacoma for $4.65, and in Medford for $4.79. These higher prices may be the result of China buying 12.5 million bushels of U.S. hard red winter (HRW) wheat and an increased demand by bakers to meet the increased demand for bread, pasta, and flour. Will these demands continue

   In the February Agricultural Outlook Forum, the USDA projected U.S. 2020 wheat production to be 1.84 billion bushels (bb) compared to 1.92 bb last year. The IGC (International Grains Council) projects 2020/21 world wheat production to be a record 28.3 billion bushels (bb) compared to 28.1 bb in 2019/20. Analysts have projected that 2020 Russian wheat production will be 150 million bushels (mb) higher than last year. Kazakhstan’s production is projected to be 100 mb higher, and Ukraine’s wheat production is projected to be100 mb lower than in 2019. A net 150 mb wheat production increase is projected for the Black Sea exporters.

   Analyst have projected a 120 mb decline in 2020 EU wheat production. Australia’s wheat production is projected to increase 150 mb. IGC’s 2020/21 wheat production estimate of a record 28.3 billion bushels is probably a pretty good estimate. Irrespective of the numbers, more than adequate wheat supplies are and will be available, so wheat prices are expected to remain relatively low.

   The increased miller and baker demand may not last long, and who knows what China will do. If China buys more U.S. wheat, the odds are that prices will increase. If China does not buy more U.S. wheat, the result is uncertain.

Risk Management Strategies

Tuesday, March 24, 2020

   At this writing, wheat may be forward contracted for harvested deliver for $4.67 (KC July -23₵) in Northern Oklahoma, $4.50 (-40₵) in Southern Oklahoma and $4.50 (-40₵) in the Panhandle. Historically, the best time to sell Oklahoma wheat is during the June through August time period, however, producers may want to forward contract a small amount now.

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."