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Market Analysis

Friday, May 22, 2015

   The KC July wheat contract price continues to challenge the $5.60 price resistance level by trading near $5.64 on Monday and Thursday. Two consecutive closes above $5.60 would establish a short-run uptrend and the next target price would be $5.80. $6 is the critical price level that could indicate an end to the long-run downtrend.

   It's interesting to note that wheat prices have increased (KC July) from a low of $4.85 on May 5 during a period of increasing wheat production expectations. Oklahoma wheat production expectations have increased from 80 to 85 million bushels (mb) to almost 120 mb. Higher production expectations have been reported in Algeria, France, Germany, Poland, and Ukraine; all of which should have had a negative price impact. The reason for increasing prices may be the fact that the funds were short 111,000 contracts (555 mb) and are reported to have reduced the short position to 86,000 contracts (430 mb), which implies that the funds bought 125 mb of wheat contracts.

   There is concern about wheat quality. There are reports of lodged wheat but the same reports indicate that quality may not have been affected, yet. If the moist weather continues, quality will decline. Production may have been reduced.

   Reviewing projected U.S. and world production and use projections indicates that Oklahoma wheat prices should average around $5.40. This implies that the KC July wheat contract may break the $5.60 support and challenge the $5.80 price level, at least at some time in the future.

Risk Management Strategies

Friday, May 22, 2015

   Oklahoma 2015/16 wheat marketing year (June 1, 2015 through May 31, 2016) prices are expected to average near $5.40 (USDA estimate is $5). Prices could go as low as $4 or as high as $7. Marketing year price trends tend to be set in late August and September. If June wheat prices approach $4.75, consider selling 25 percent at harvest and the remaining 75 percent in the September/October and November/December time periods. If cash prices are above $6, consider selling 40 to 50 percent at harvest and the remainder staggered through fall and early winter.

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."