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Market Analysis

Friday, December 12, 2014

   KC March contract prices held the $6.20 price support level. The next price target is about $6.66. If the KC March price breaks the $6.66 price resistance, the next target price would be about $7.12. Closes below $6.20 are required to break the uptrend.

   Factors that led to higher prices were lower than predicted wheat production in Australia, rumors that Russia would restrict the export of "quality" wheat (protein and test weight), speculation that the Argentine government may restrict exports, a lack of wheat quality available for export by other exporting countries, lower protein than normal wheat being exported out of Canada, and the availability of relatively high protein and test weight wheat in the U.S.

   Also, some analysts report that the U.S. 2015 hard red winter wheat crop may have been damaged by recent freezing temperatures and relatively dry conditions. Most analysts know that the amount and timing of precipitation between March and June will be the biggest determinant of 2015 wheat production. This situation implies that for the next two months, export demand will have the largest impact on wheat prices. Given the current world supply of "quality" wheat, demand for U.S. hard red winter may increase resulting in higher prices.

   Wheat prices are on an uptrend and have been since the low set on October 1. The trend is supported by relatively tight U.S. hard red winter wheat stocks. Hard red winter (HRW) wheat is above average in test weight and protein. Both test weight and protein could be valuable if the 2015 HRW wheat crop is below average in test weight and/or protein. If the 2015 wheat production is below average, the wheat in the bin will be needed. Point: someone needs to store the HRW wheat until the 2014/15 marketing year.

Risk Management Strategies

Friday, December 12, 2014

   If you have wheat in storage, now may be a good time to sell a designated percentage or to complete the final one-third of the 2014/15 wheat marketing year sales. Consider forward contracting, maybe, 25 percent of expected 2015 wheat production. Buying KC July put option contracts to establish minimum prices should also be considered.

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."