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Market Analysis

Friday, August 22, 2014

   Oklahoma cash wheat prices are still based on the KC September wheat contract price. Within the next week the market will roll to the KC December wheat contract. If the KC Dec contract price closes above $6.40 on Monday, August 25, the price downtrend that started on May 14 will be broken. The December contract price then will be in a sideways pattern between $6.20 and about $6.60. The support and resistance levels will be more apparent after the market rolls to the Dec contract. Right now it appears that the Dec contract price has support at $6.18 and has resistance at about $6.60, maybe $6.74. Prices above $6.74 would indicate an uptrend.

   Higher prices may be the result of wheat quality issues in France and Germany. There was one report that France may import flour milling quality wheat. There are also some questions about growing conditions in certain areas of Australia. It is important that the KC Sept contract price bottomed out at $6.02 and is $6.36.

   Reports indicate that the average hard red winter (HRW) wheat protein in Texas, Oklahoma, and Kansas is about 14 percent. Millers report that 14 percent protein HRW wheat is an unprecedented problem. Reports indicate that the nearest acceptable protein wheat (in large quantities) is in northwest Nebraska. The protein premium is inverted – lower protein HRW wheat has higher demand than relatively high protein HRW wheat.

   The good news is that there should be relatively high demand for 2015 harvested HRW wheat. A relatively large 2015 wheat crop may result in the KC July '15 wheat contract price being below $6, but the basis should be relatively strong in June 2015. If the KC Dec contract price closes above $6.44 on Monday, August 25, the target price becomes $6.60.

Risk Management Strategies

Friday, August 22, 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."