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Market Analysis

Friday, May 18, 2018

   The bottom line is that we will know U.S. and world wheat production when the 2018/19 wheat crop is in the bin. However, the USDA released estimates that may be used to set the baseline production, use, and ending stocks estimates.

   U.S. 2018 wheat production is projected to be 1.82 billion bushels (bb) compared to 1.74 bb in 2017 and a five-year average of 2.05 bb. Hard red winter wheat production is projected to be 647 million bushels (mb) compared to 750 mb in 2017 and a five-year average of 830 mb. The U.S. wheat stocks-to-use ratio is projected to decline to 46.1 percent from 53.4 percent.

   World wheat production is projected to be 27.5 bb compared to the 27.9 billion bushel record in 2017/18. The stocks-to-use ratio is projected to decline from 36.4 percent to 35.1 percent. The five-year average stocks-to-use ratio is 32.9 percent. Production for the seven hard winter wheat producing countries is projected to be 8.13 bb compared to 8.35 billion last year and a five-year average of 7.78 bb.

   World and hard wheat exporting countries' wheat production is projected to be lower than last year. World wheat consumption is projected to be a record 27.7 bb. Potential production problems are prevalent in U.S. HRW, Russian, and Australian wheat areas. With lower wheat production and higher consumption, wheat prices are projected to be higher than last year.

Risk Management Strategies

Friday, May 18, 2018

   If the harvested wheat has greater than 59 pound test weight and 12.2 percent protein, consider selling at least 50 percent at harvest. If Russian and Australian wheat production expectations continue to decline, wheat prices will be expected to increase into the fall and winter. Conversely, higher production expectations would result in declining prices in the fall and winter. A 1/3, 1/3, 1/3 strategy may be as good as anything else.

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."