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Market Analysis

Wednesday, September 24, 2014

   KC December wheat contract prices reached the $5.50 price target area and have recovered back to be near $5.70. There is weak resistance in the $5.70 to $5.80 range and the $6 range. There is strong price support at $5.50 and strong resistance at $6.20. Market chatter continues to mention the projected record, 26.5 billion bushels (bb), world wheat crop and that the world is "awash of wheat." World wheat production is projected to be 1.5 bb above average and 900 million bushels above the 2013/14 marketing year's record consumption.

   There are some problems with world wheat relative to milling quality, especially with bread flour wheat. U.S. hard red winter wheat averaged about 13.3 percent protein and the wheat protein levels in Oklahoma, Texas, and Kansas may average as high as 14 percent. On the other hand, hard red spring wheat is below average protein and could compete with hard red winter wheat. The U.S. wheat mills good, the protein may just be too high.

   Oklahoma wheat producers have until September 30 to purchase wheat crop insurance. Research shows that producers that select Revenue Protection policies should look closely at purchasing Enterprise rather than Optional Units policies. Enterprise Units premiums are significantly lower which allows producers to purchase higher coverage levels (75 percent with Enterprise versus 65 percent with Optional). Even at 75 percent Enterprise versus 65 percent Optional, premiums may be 35 to 40 percent lower. Analysis also shows that with losses, the payoff may be higher with Enterprise Units compared to Optional Units.

   KC December contract wheat prices are expected to trade in range between $5.50 and $6.20. Closes below $5.50 would indicate a price target of $5 and closes above $5.80 would indicate price targets of $6 and $6.20.

Risk Management Strategies

Wednesday, September 24, 2014

   If you have a written marketing plan, follow it. If you haven't sold any wheat and can afford the risk, consider holding the wheat until after January 1, maybe even into the March/April time period. Another strategy is to sell the wheat in 20 percent increments between now and January 1. The last time KC wheat contract prices fell from above $6, they fell to about $5.40 and then recovered, for a short period of time, to above $6.

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."