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Market Analysis

Friday, August 29, 2014

   Wheat prices rallied at the end of the week, but the KC December wheat contract price remained below the $6.60 resistance level. The rally may be due to traders clearing accounts before a three day weekend and/or end of the month trades. To establish an uptrend, the KC Dec contract price needs to close above $6.74 two consecutive days. Right now, the Dec contract price is simply trading between $6.22 and $6.60.

   There are reports that excess rain in northern U.S. may have lowered the quality and quantity of wheat. Reports indicate that sprout damage has occurred in some areas. Some HRW wheat in North Dakota will not be harvested. Some analysts have also projected that hard red spring with protein may have a lower average than hard red winter wheat; especially wheat harvested in Oklahoma, Kansas and Texas. There was also a report that indicated that France is importing relatively high protein wheat to blend with their rain damaged wheat.

   Hard red winter wheat exports are projected to be 20 percent lower than last year. As of August 21 with 22 percent of the year complete, HRW wheat exports are 33 percent below the same time last year. For HRW wheat prices to increase, export demand must increase.

   World wheat production is projected to be a record 26.3 billion bushels (bb). Russia may be harvesting a near record wheat crop as is the EU-27. Quality problems have been reported in France and Germany. A record 14 bb U.S. corn crop is being harvested. All this is already factored into wheat prices. While the crops could get bigger, I believe the odds are against it. Thus, I believe that there is more upside (limited) price potential than downside price risk.

Risk Management Strategies

Friday, August 29, 2014

   If you have a written marketing plan, follow it. If not, and you can afford to take a 50 cent loss in price, consider storing wheat until the October/November time period. I put the price risk at 50 cents plus about 20 cents storage. If you haven't sold any wheat, consider selling in one-third to one-fourth lots between now and Jan 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."