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Market Analysis

Friday, September 15, 2017

   Tuesday, September 12 may have been "turn around Tuesday." Wheat price bottomed out at $4.26 and closed at $4.42. Wednesday through Friday, the KC December wheat contract traded between $4.40 and $4.50. The bleeding may have stopped but the Dec contract price just can't break the $4.50 price resistance level.

   This week, news headlines included, "Ukraine says policy shift could cut off its wheat shipments to Egypt" (Pro Farmer's Evening Report). This story relates to Egypt changing wheat protein requirements to 12.5 percent which will favor Russian wheat. "Australia's wheat forecast cut 11% by dry weather, frost" (Bloomberg). This story refers to projected Australian 2017/18 wheat production of 970 million bushels (mb) compared to 1.23 billion bushels (bb) last year and a five-year average of 940 mb. "Egypt may reject French wheat as tough inspections rattles trade" (Reuters News). This story is related to poppy seeds in a French cargo. "Early yields in Canadian spring wheat harvest better than expected" (Reuters News). The story refers to higher than expected Canadian wheat yields and potentially lower than expected protein content. "Black sea wheat exports to Asia hit record high in August, hurting Australian growers" (Reuters News). The story refers to Russia, Ukraine, Kazakhstan, and Belarus wheat exports taking Australia's traditional markets.

   The percentage of world wheat harvested acres is probably near 85 percent and the percentage of the world's wheat production is probably near 90 percent. Harvests in the Northern Hemisphere of major wheat production countries are down to Russia and Canada. The major Southern Hemisphere countries to harvest wheat are Australia (830 mb), Argentina (640 mb) and North Africa. Australia and Argentina are projected to produce about 5.4 percent of the world wheat.

   It's too wet in Argentina and too dry in Australia. The odds of changes in wheat production expectations in the Southern Hemisphere having much impact on wheat prices are small. Chances for significantly higher wheat prices are slim. The market will soon start looking at planted wheat acres for the 2018/19 marketing year.

Risk Management Strategies

Friday, September 15, 2017

   If you're using the 1/3, 1/3, 1/3 strategy, stay with it. Otherwise, consider establishing a mechanical marketing strategy. Set price (target) levels with assigned bushel amounts plus a kill date for each price level to occur. If the target price occurs, sell the specified amount of wheat. If the kill date arrives before the target price, sell the specified amount of wheat.

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."