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Market Analysis

Friday, September 12, 2014

   The KE December wheat contract price closed below the strong $6 price support level and the price is a new contract low. It is the lowest KE nearby contract price since July 2010. If the KE Dec contract price closes below today's $5.93 close, the price target will be $5.80. There is relatively strong support at about $5.50. Closes below $6 will imply the end of the short-run sideways price pattern and the continuation of the long-run downtrend.

   Price weakness is mostly due to the September WASDE report released September 11. Reduced projected export demand resulted in the U.S. wheat ending stocks estimate being increased to 698 million bushels (mb) from 663 mb. The world wheat production estimate was increased to 26.5 billion bushels (bb) from 26.1 bb. World projected wheat ending stocks were increased from 7.1 bb to 7.2 bb. A projected 14.3 bb corn crop and 2.0 bb corn ending stocks also didn't help wheat prices.

   Oklahoma wheat producers may plant as much or more wheat for 2015 as planted for 2014. A large percentage of the field work is done and producers that plan to graze wheat with cattle have planted or will have the wheat planted within the next few weeks. Some analysts believe that Oklahoma will have a 3 to 5 percent increase in planted acres but that the increase will go to grazing and/or hay. Canola acres are projected to be 50 to 60 percent lower than last year.

   A side note: To be eligible for Price Loss Coverage, producers must sign up at the USDA/FSA office by September 30. To trigger the PLC payment, U.S. average annual wheat price must be below $5.50. During the first three months of the 2014/15 marketing year, U.S. wheat prices have averaged about $6.12. For the average annual price to be $5.50 or less, the U.S. wheat price, for the next nine months, must average less than $5.26.

Risk Management Strategies

Friday, September 12, 2014

   If you have a written marketing plan, follow it. If not, and you can afford to take a 40 cent loss in price, consider storing wheat until the October/November time period. If you haven't sold any wheat, consider selling in one-third to one-fourth lots between now and Jan 1.

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."