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Market Analysis

Friday, August 28, 2015

   The KC Dec contract had support at about $4.90 and the Sept contract had support at $4.70. The KC Dec contract broke the $4.90 support with closes at $4.89, $4.89, $4.88, and then $4.84. There is strong support at about $4.70 which makes the KC Dec contract price target $4.70. Wheat prices are still on a relatively steep downtrend appears that the trend may be about to be broken. Next week will tell the story. Flat prices will imply that the downtrend may be broken. $4.70 and lower will imply that the downtrend will continue.

   The 2015/16 marketing year price trend may be like the 2009/10 marketing year's trend. Starting in June 2009, world wheat stocks were at near record levels and world wheat production was projected to be the second highest on record. High stocks and near record production resulted in Oklahoma wheat prices being in the $5.50 range. As estimates of world wheat production increased to a new record, wheat prices continued to decline. Prices bottomed out at $3.85 in February 2010.

   Wheat prices didn't develop an uptrend until July when, with each new estimate, world wheat production expectations were reduced. Wheat prices went from $3.56 in late June 2010 to $6.10 on September 1, 2010. Prices hit $7 in December and $8 in January. Unless something happens to reduce wheat production in the southern hemisphere, 2015/16 price movements could be like 2009/10 price movements.

Risk Management Strategies

Friday, August 28, 2015

   Consider selling a designated portion of wheat on each rally, setting a date for having all the wheat sold. Then set price and date targets to sell in lots. For example, all wheat will be sold by December 31. The first 20 percent will be sold by September 15 or $4.75, whichever happens first. If the price hits $4.75 before Sept 15, sell the wheat. If the price doesn't hit $4.70 by Sept 15, sell the first 20 percent on Sept 15. When the wheat is sold, set the date and price to sell the next 20 percent.

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."