The USDA released the average 2015/16 marketing year projections for the major crops. 2015/16 U.S. wheat prices are projected to average $5.10 compared to a seven-year average of $6.46. Production is projected to be 2.125 billion bushels (bb) and ending stocks are projected to be 763 million bushels (mb). The seven-year average U.S. wheat production is 2.19 bb and ending stocks averaged 748 mb. Production is projected to be slightly below average and ending stocks slightly above average.
The stocks-to-use ratio may be a better price projector than ending stocks. The stocks-to-use ratio is projected to be 34.6 compared to a seven-year average of 33.5. This could explain part of the $1.36 difference between the 2015/16 projected average annual price ($5.10) and the seven-year average price ($6.46). The other 36 cents may be explained by above average world wheat stocks and relatively large corn stocks.
The KC July wheat contract price closed within 9 cents of the $5.37 contract low. Closes below $5.37 would indicate a target price of about $5.15. Prices have not been this low since June 2010. Closes below $5.15 could signal a price move to the $4.60 area. Wheat prices are on a long-run downtrend that started June 2012.
Oklahoma wheat may be forward contracted for harvest delivery between a minus 50 cents (southern Oklahoma) and a minus 15 cents (Garfield county-Enid) basis the KC July contract. With total production costs near $5.50 per bushel, not much wheat will be forward contracted at current price levels.
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."