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Market Analysis

Friday, February 5, 2016

   Just when I report a list of market price factors, the KC March contract price declines 13 cents in two days. The price decline may be because Egypt has rejected the price offers for the last two tenders. Reports indicate that Egypt may have a shortage of U.S. Dollars to cover the import grain costs. The c&f (cargo & freight) price offers were France $5.08/bu., Russia $5.18, and Romania $5.27. One report had Algeria buying wheat c&f for $4.84 per bushel. HRW wheat price for wheat delivered to the Texas Gulf is $5.34 (This doesn't include margin, loading and freight.) U.S. wheat is priced well above the world market.

   Market factors that may support wheat prices include reduced 2016 wheat production in India, North Africa, Ukraine, and the United States winter wheat. There may be wheat quality problems with French wheat. Reports indicate that Canadian wheat stocks are lower than expected. Also, the value of the U.S. relative to other major currencies declined about 2.5 percent this week. To date, these factors haven't resulted in higher prices, but they should be watched.

   The KC March wheat contract price broke the $4.63 support price and tested the $4.51 contract low. Closes below $4.51 indicate that the next price target may be $4.33. KC nearby contract prices haven't been below $4.51 since June 2010.

    Weather during the March through May time period will determine the yield per acre. Current crop and moisture conditions imply average or better yields are likely. The odds are that higher yields than last year will not offset the nine percent decrease in planted acres. Production is expected to be less than last year. However, ending stocks are projected to be 188 million bushels higher than last year. Ending stocks will more than offset any decline in production, resulting in an increase in the wheat supply during the 2016/17 marketing year.

Risk Management Strategies

Friday, December 11, 2015

   A market strategy to consider is selling wheat using price and target dates. For example, all wheat will be sold by December 31. The plan had the first 20 percent to be sold by September 30 or $4.50, whichever happens first. Cash prices hit $4.54 on Sept 14 so the first 20 percent was sold for $4.54. The second 20 percent lot was scheduled to be sold for $4.75 or Oct 15, whichever one happened first. The wheat price peaked at $4.68 (below $4.75) on Oct 6. The wheat was sold on October 15 for $4.45. The next 20 percent will be sold for $4.68 or November 10, whichever one happens first. The price didn't reach $4.45 so was sold for $4.10 on November 10. The final 20 percent will be sold for $4.45 or on December 31, whichever occurs first. On December 10, the cash price is $4.35, which is up from $4.01 on Dec 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."