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Market Analysis

Friday, August 15, 2014

   KC September wheat contract prices survived the August WASDE Report. There is very strong price support at $6.00 and the Sept contract price bottomed at $6.02. Wheat prices are not "out-of-the-woods" yet but the odds are higher that the price bottom has been set. At this writing, the Sept wheat contract price is $6.20 and the Dec contract price is $6.35. Price support levels are $5.70, $6, and $6.22. Resistance levels are $6.36 and $6.75. To break the downtrend, the December contract price needs to close above $6.75. To continue the downtrend, the December contract price needs to close below $6.22. While the odds are that wheat prices have bottomed out, the predicted KC Dec contract bottom price is $5.70. I point this out because I believe the odds are against lower prices but producers must realize that there are still about 65 cents risk in the market.

   In the August WASDE reports, world wheat production was projected to be a record 26.3 billion bushels (bb) and ending stocks were projected to be 7.1 bb. The 6-year average ending stocks are 6.9 bb. U.S wheat production was increased to 2.03 bb (2.22 bb 6-year avg) and ending stocks were increased to 633 million bushels (mb) compared to the 6-year average of 758 mb. Hard red winter wheat production was projected to be 729 mb (916 mb 6-year avg) and ending stocks were projected to be 186 mb (320 mb 6-year avg). Even though HRW wheat stocks are very tight, the world has above average wheat supplies to meet consumption demand.

   Hard red spring (HRS) wheat production was projected to be 529 mb. Above average HRS wheat production is expected to result in below average protein. Relatively low HRS protein wheat may compete with relatively high HRW wheat protein, 13.5 percent average. Importers may buy low end protein HRS wheat rather than the high end protein HRW wheat. While HRW wheat prices may increase, there may be a limit on the increase.

Risk Management Strategies

Friday, August 15, 2014

   If you have a written marketing plan, follow it. If not, and you can afford to take another 50 cent loss in price, consider storing wheat until the October/November time period. I put the price risk at 50 cents plus about 20 cents storage. If you haven't sold any wheat, consider selling in one-third to one-fourth lots between now and Jan 1. Selling wheat and buying call options doesn't appear as attractive as it did a month ago.

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."