Again, the KC March wheat contract price challenged the critical March contract support price of $6.94. Prices below $6.94 would imply a new target price near $6.70. Given relatively tight hard red winter wheat stocks, the odds of the March contract breaking the support price are less than 35 percent. If the $6.94 price holds through next Tuesday, the odds of a small price rally may improve. Given that price movements in December can sometimes be erratic, KC March wheat contract prices will be extremely difficult to predict.
Stats Canada's wheat production estimates were increased to 1.0 billion bushels compared to 740 2012 production of 740 million bushels (mb). Australia's wheat production estimate was also increase. Australia's production is expected to be about 900 mb which is near the 5-year average. Argentina is projected to harvest 404 mb compared to a 5-year average of 479 mb. The fact is that the world will have a record wheat harvest of about 25.95 billion bushels (bb) and world wheat ending stocks are projected to be 6.56 bb, compared to 6.45 bb last year and a 5-year average of 7.01 bb. The December USDA/WASDE report will be released Tuesday Dec 10.
In the November WASDE, U.S. wheat ending stocks were projected to be 565 mb compared to 718 mb last year and a 5-year average of 770 mb. During the month of December 2012, Oklahoma wheat prices averaged $8.30. Deducting $1 for tight corn stocks results in a price of $7.30. Current Oklahoma prices are near $6.75. With lower supply, wheat prices are significantly lower. This reflects more than adequate world wheat stocks and well above average corn stocks.
In the Dec WASDE, the USDA projected corn ending stocks to be 1.89 bb compared to a 5-year average of 1.31 bb. USDA's projected world corn ending stocks to be 6.47 bb compared to a 5-year average of 5.56 bb. For the CBT March corn contract, $4.20 is a critical price level. Closes below $4.20 may indicate that the CBT Dec corn contract price may challenge $4. Prices below $4 could result in a price target of $3.67. If $4.20 holds, the price target may be $4.50.
There just isn't much positive news in the wheat market. Consider having at least 85 percent of your 2013 harvested wheat sold. With record world wheat production and record U.S. corn production there is still downside price risk. With a strong basis, selling all the wheat and buying KC March wheat futures contracts may also be a good strategy.
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."