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Market Analysis

Friday, October 31, 2014

   The KC December wheat contract price wallowed around the $6 resistance level for about two weeks and then on Friday, Oct 31, had a hard down day closing below $6 at $5.93. This doesn't look good. If the KC Dec contract price stays below $6 through Tuesday, or if Monday is another down day, the Dec contract price may challenge the $5.50 low.

   Negative market news includes the increasing value of the U.S. dollar relative to other major currencies. During the last 11 trading days, the dollar's index has increased about 2 points (2.4 percent). Since early July, the index has increased about 7 points (8.8 percent). This has effectively increased the price of U.S. hard red winter wheat for export about 60 cents per bushel.

   Positive price news is lower U.S. wheat ending stocks (698 mb lowered to 654 mb), record high hard red winter wheat protein levels combined with well-below-average hard red spring wheat protein levels, plus below-average milling quality wheat in France and Germany and declining production expectations in Australia. Negative price news is that some analysts are projecting increased planted acres for the 2015 world winter wheat crop.

   Unless corn prices go in the tank (and I think the low price has already been established) and/or something major doesn't happen in the U.S. or world economies, U.S. wheat prices have established the bottom until late in the 2014/15 wheat marketing year.

Risk Management Strategies

Friday, October 31, 2014

   If you have a written marketing plan, follow it. Selling certain percentages of stored wheat on rallies may be a good strategy. Another strategy is to sell the wheat in 20 percent increments between now and January 1. Consider forward contracting, maybe, 10 percent of expected 2015 wheat production.

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."