Since February 10 (last Market Analysis), cash wheat prices have fallen about 30 cents. The basis has remained relatively stable implying that the price decline is demand driven. The market has reacted to 2017 wheat crop growing conditions. The Oklahoma Drought Monitor shows the Oklahoma wheat area in moderate to severe drought conditions. There is an area of extreme drought in the Oklahoma Panhandle. Moisture conditions are more favorable in Kansas than Oklahoma. Central Kansas is free of drought conditions. Western Kansas is abnormally dry to moderate drought.
The Oklahoma wheat crop is rated 84 percent fair to excellent (42 percent good to excellent) compared to 97 percent fair to excellent last year. Kansas' wheat crop is rated 77 percent fair to excellent compared to 93 percent last year. Depending on growing conditions between now and harvest, yields are expected to be slightly above average.
Hard red winter wheat planted acres are 23.3 million acres, down 12 percent from last year. Given that last year's yields were well above average and that yield expectations this year are for average to slightly above average, HRW wheat production may be 850 million bushels.
Wheat prices may be limited by wheat production in competing wheat exporting countries. Russian wheat production is expected to be near the record 2.66 billion bushels. Of the bread flour producing countries, only the U.S. and Australia's wheat production is expected to be significantly lower. 2017/18 wheat prices are expected to average in the $3.50 to $4.50 range.
The new crop forward contract price is around $3.75. If the harvest price is below $3.75, it will probably be because yields and production are higher than expected. That means a lower price may be partially be offset by higher yields. If you can afford the price risk, don't price 2017 wheat.
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."