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Market Analysis

Friday, December 6, 2019

   U.S. hard red winter (HRW) wheat exports for the 2019/20 wheat marketing year, to date, are 38 percent higher than during the same period in 2018. The USDA projects 2019/20 marketing year (June 1 through May 30) HRW wheat exports to be 15 percent higher than 2018/19 HRW wheat exports. Relatively strong HRW wheat exports have occurred in spite of record world wheat production and projected record world wheat ending stocks. They have also occurred in spite of U.S. HRW's average protein content being 11.3 percent. The Black Sea exporters continue to export 12.5 or higher protein wheat.

   U.S. HRW wheat is being exported because HRW wheat prices have been at or below competitive exporters' prices. Note that competitive prices must include ocean freight costs. Russia and Ukraine are loading vessels for about $6.09 per bushel (FOB). The Texas Gulf spot price is $5.38. Using 22 cents handling and loading costs, the FOB Houston price would be $5.60. The 49 cent price difference could be used to offset the Black Sea exporters' ocean transportation advantage. Oklahoma wheat prices ($4.15) are about $1.27 below Houston's spot price.

   Some analysts are predicting that Oklahoma's planted acres will be below last year's 4.2 million acres. Texas planted acres are projected to decline, and Kansas acres may be dramatically lower than last year. Since 2003, Oklahoma wheat acres have declined from 6.7 million to 4.2 million (2018). Texas wheat planted acres have declined from 6.6 million in 2003 to 4.5 million in 2018. Kansas wheat acres have declined from 10.5 million to 6.9 million. One analyst said that 2020 Kansas acres could fall as low as 6 million.

   Nothing appears to be in the wheat market situation that supports significantly higher wheat prices. The KC March wheat contract has support at $4.25 and resistance at $4.50.

Risk Management Strategies

Friday, December 6, 2019

   If you have wheat in storage, you probably have a 50/50 chance that price increases between now and January 1 will cover carry costs. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 wheat.

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."