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Market Analysis

Friday, November 21, 2014

   Transportation rates may be coming down. One report indicated that train shuttle rates fell about $280 this week and are $3,000 below the peak. Lower freight rates could result in lower basis. Reports also indicate that lower protein wheat in the EU and Australia may result in increased demand for Canadian spring wheat for blending. This may also be positive news for U.S. hard red winter wheat, which had an average protein level of 13 plus percent and near 14 percent for Oklahoma, Kansas, and Texas. Lower than expected production in Australia may also help prices.

   On the negative side are wheat export sales and shipments. The November 6th U.S. Wheat Export Report indicated that all wheat exports and sales are 26 percent below this time last year compared to USDA's projection that 2014/15 all wheat exports would be 21 percent less than last year. Hard red winter wheat exports are 38 percent less than last year, compared to USDA's projection of 28 percent.

   KC March wheat contract prices are trading in a $5.71 to $6.18 sideways pattern, with this week's price range between $6.12 on Monday and $5.84 on Wednesday. The price was back up $6.12 on Friday. Prices above $6.20 will indicate a target price of $6.35 and maybe $6.60. Prices below $5.72 indicate a price target of $5.50. Prices must trade below $5.50 to establish a downtrend. The odds are higher for prices to break out the top than breaking out the bottom.

   Note: there are indications that Oklahoma's planted wheat acres for the 2015 crop are equal to or less than last year; probably one to two percent less.

Risk Management Strategies

Friday, November 21, 2014

   If you have a written marketing plan, follow it. Selling certain percentages of stored wheat on rallies may be a good strategy. Another strategy is to sell the wheat in 20 percent increments between now and January 1. Consider forward contracting, maybe, 25 percent of expected 2015 wheat production.

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."