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Market Analysis

Friday, April 11, 2014

   The KC July wheat contract price fell to $7.35, increased back up to $7.56 (challenged the $7.60 resistance point) and, on Friday, challenged the $7.20 price support level. If the KC July wheat contract price is above $7.20 on Wednesday, April 14, prices may establish a sideways pattern between $7.20 and $7.60. Rain is the driving force. As long as moisture is disappointing, wheat prices should stay above $7.20 and may go back above $7.60. If it rains, expect prices to break the $7.20 support price. Mark Gold, Top Third Marketing may have summed it up best; "once the markets start trading weather, they're trading hot air."

   Wheat may be forward contracted for harvest delivery in most Oklahoma country elevators for 35 to 45 cents less than the KC July wheat contract price ($7.25 - $0.40 = $6.85). Corn may be forward contracted for harvest delivery for 33 to 38 cents less than the CBT Dec corn contract price except in the Oklahoma/Texas panhandle where the FC harvest corn basis is 10 to 15 cents higher than the CBT Dec corn contract price. Grain sorghum FC harvest basis is a minus 33 to a minus 44 cents, with the higher basis being for the panhandle areas.

   The five-year (2008-2012) average HRW production is 957 mb. 2013 HRW wheat production was 744 mb will result in continued tight HRW wheat stocks and relatively high prices. The five-year (2009-2013) average use is 914 mb. Production below 914 mb may indicate lower HRW wheat stocks and higher prices.

   There were no surprises in USDA's WASDE. U.S. wheat ending stocks were exactly equal to the average trade estimate of 583 million bushels (mb). Corn ending stocks were 1.331 billion bushels (bb) compared to the trade estimate of 1.403 bb and soybean ending stocks were 135 mb compared to the trade estimate of 139 mb. All three markets are mostly weather driven. Export demand does have influence, especially with corn and beans. World wheat ending stocks were about 3 bb (1.6 percent) higher than trade expectations.

Risk Management Strategies

Friday, April 11, 2014

   Consider forward contracting 20 to 25 percent of your expected production. If you hedge rather than forward contract, be prepared to make relatively large margin calls. If production is below average, prices should offset most of the income loss. If production is above average, prices should offset some the income gain. What is certain is that a marketing plan that takes into consideration both high and low yields and prices will make making selling decisions much easier.

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."