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KIM'S SOAP BOX

Market Analysis

 
Friday, July 14, 2017
(archives
)

   The gap on the KC September wheat contract chart was closed. Hopefully the door wasn't closed behind the gap. On Monday, July 3 the KC Sept contract opened at $5.35 which was the low for the day and was 6.5 cents above the close and high for Friday, June 30. This gap was closed on Thursday, July 13 when the range of the day's trades was between $5.41 and $5.155. There is relatively strong support at $5 with resistance at $5.30. Oklahoma's cash prices are 54 cents below the peak price set on July 5.

   The WASDE report was released and the market went spastic. The world wheat situation showed little change in production and ending stocks. U.S. wheat production was slightly lower and ending stocks slightly higher than the June estimates. Russian wheat production was increased 110 million bushels (mb) and Ukraine production was lowered 36 mb and Australian wheat production was lowered 55 mb. A net gain of about 19 mb for major hard wheat exporters.

Risk Management Strategies

 
Friday, July 14, 2017
(archives
)

   Consider selling one-third of the wheat now, one-third during the September/October time period and the final one-third in November/December. Another alternative is to sell some wheat now and set price (target) levels with assigned bushel amounts and kill dates for each price level to occur. If the target price occurs, sell the specified amount of wheat. If the kill date arrives before the target price, sell the specified 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."