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Market Analysis

Friday, November 20, 2015

   The good news may be that there just isn't any negative price news that hasn't been factored in the market. The bad news is that there just isn't any good news to have a positive price impact. The market is rolling to the KC March contract. The March contract has support at $4.69 and resistance at $4.80. Closes below $4.69 would find support at about $4.55 and $4.40.

   The long-run downtrend that was established in June 2014 continues. To break the long-run downtrend, December contract prices need to close above about $5.50. Given relatively large world wheat stocks, breaking the downtrend is not very likely in the near future.

   With excess wheat stocks, and Argentina, Australia, and South Africa's wheat harvests well under way, wheat futures contract prices are expected to stay in the $4.60 to $4.80 range (maybe $5 but unlikely). These harvests are completed about January 1.

   2016/17 U.S. wheat exports are 15 percent less than last year and hard red winter wheat exports are 25 percent less than last year. The USDA (WASDE) predicts all wheat exports to be about 6 percent less than last year, and HRW exports down 20 percent.

Risk Management Strategies

Friday, November 20, 2015

   A market strategy to consider is selling wheat using price and target dates. For example, all wheat will be sold by December 31. The plan had the first 20 percent to be sold by September 30 or $4.50, whichever happens first. Cash prices hit $4.54 on Sept 14 so the first 20 percent was sold for $4.54. The second 20 percent lot was scheduled to be sold for $4.75 or Oct 15, whichever one happened first. The wheat price peaked at $4.68 (below $4.75) on Oct 6. The wheat was sold on October 15 for $4.45. The next 20 percent will be sold for $4.68 or November 10, whichever one happens first. The price didn't reach $4.45 so was sold for $4.10 on November 10. The final 20 percent will be sold for $4.45 or on December 20, whichever occurs first.

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."