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Market Analysis

Friday, April 17, 2015

   The rain didn't miss the hard red winter wheat area and prices acted accordingly. Some producers in the Enid, Oklahoma area said that their yields may have increased from about 15 bushel per acre to 24 bushels. They believe that if additional moisture is received, yields could be as high as 30 bushels. This is on land that normally produces 40 bushels. Wheat is a resilient plant and with moisture can produce even in the worse conditions. We'll know how much wheat is produced at harvest.

   The anticipation and reception of rain resulted in KC July wheat contract prices declining from $5.86 to $5.17. The contract price broke resistance at $5.40 and $5.23. If Monday's July contract closing price is below $5.17, the target price will be $4.96. Contract prices below $4.96 would imply a price target of $4.53. Closes above $5.23 would indicate a price target of $5.40.

   World wheat ending stocks are projected to be about four percent above the five-year average. This signals that there is adequate wheat to meet demand. However, the world stocks-to-use ratio is projected to be slightly (3%) below average. Adequate wheat is available but stocks are sufficiently tight that the loss of a few crops could result in significantly higher prices. Weather will determine how much wheat is produced and production will determine price.

Risk Management Strategies

Friday, April 17, 2015

   If you have wheat in storage, take advantage of any price rally. June 2015 Oklahoma cash wheat prices are expected to be near $5.25. If the market offers wheat harvest prices above the cost of production, you may want to take advantage of it with a limited amount of 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."