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Market Analysis

Friday, January 12, 2018

   This is the first "Market Analysis" written since October 10 and the Oct 10 Analysis remained relevant. The USDA Seedings report may change things . . . a little. Contrary to the market's expectation, hard red winter wheat planted acres were only two percent less than last year (market expected eight percent lower). Oklahoma was down nine percent but Kansas was three percent higher than last year and Kansas trumps Oklahoma. Kansas has 90 percent more seeded acres (7.8 million vs. Oklahoma's 4.1 million) plus Kansas has a higher average yield per acre and harvests a higher percentage of the planted acres.

   World weather is conducive to wheat production and world winter wheat seeded acres do not appear to be much less than last year. World wheat ending stocks are projected to be near record levels and the stocks-to-use ration is well above average. Without a change in weather patterns, the only hope for higher U.S. hard red winter (HRW) wheat prices is above-average quality.

   There just isn't much hope for higher world wheat prices as determined by the CBT's KC Wheat (HRW wheat) contract price. Higher cash prices, if they happen, may be the result of an improved (higher) basis due to above-average test weight and protein. Current crop conditions indicate that the odds are for average test weight and protein levels.

   Given that HRW wheat seedings were two percent less than last year and soft red winter wheat seedings were four percent above last year, implies an increase in the spread between HRW and SRW wheat prices (HRW above SRW). Yields and production will be determined by weather conditions in March, April, and May.

Risk Management Strategies

Friday, January 12, 2018

   A marketing strategy should include determining how much top-dress nitrogen will be applied and, if needed, will fungicides be used. From a price standpoint, why lock in a loss or very small profit? Normally, there is a price rally in late March and early April. Any big move in cash prices is not expected until the July through September time period.

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."