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Market Analysis

Friday, October 6, 2017

   The bad news is that the KC December wheat contract price didn't hold after closing above the $4.50 resistance level four days in a row. The contract price fell to near the $4.30 support level. Two reasons for lower prices may be increases in the value of the U.S. dollar relative to other currencies and higher than expected Russian wheat production.

   After trading as low as 91.0 (Sept 8), the index of the U.S. dollar increased to 93.7 (Oct 6), a three percent increase. Recently, market analysts increased the estimates for Russian wheat production from 3.0 billion bushels (bb) to 3.05 bb. Informa raised world wheat production 86 million bushels (mb) mostly due to higher Russian wheat production.

   Weather continues to threaten Australian wheat production. The September WASDE estimated Austrian wheat production to be 830 mb compared to 1.23 bb last year and a five-year average of 940 mb. Argentine wheat production is projected to be 640 mb the same as last year and almost 200 mb above the five-year average.

   The fact remains that the 2017/18 what marketing year will end with lower U.S. wheat stocks and record world wheat stocks. World stocks will trump U.S. stocks and wheat price are expected to remain near current levels. The good news is that about all the potential bad news is already factored in the market.

Risk Management Strategies

Friday, October 6, 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."