There is a 50/50 chance that wheat prices have bottomed out, at least for the next few weeks. If the KCBT September wheat contract price is above $5.70 after next Tuesday's (July 7) KCBT market close, the Sept contract price may reach $5.90. Wheat prices tend to bottom out in July or early August. Monday's (June 29) KCBT September wheat contract price was down 8 cents to $5.92. After USDA reports were released last Tuesday, the September contract price fell to $5.63 – within 3 cents of the $5.60 support – and closed at $5.80. The KCBT September contract closed the week at $5.64, down 36 cents for the week. The September contract has price support at about $5.60 and resistance at $6.
On June 30, the USDA released a bombshell on the grain markets. Winter wheat planted acres were not expected to change. Spring wheat planted acres were expected to decline about 331 thousand acres. The USDA increased the winter wheat planted acres estimate 560 thousand acres (ta) and spring wheat plantings 469 ta. The average prerelease corn planted acres trade estimate was 84.16 million acres (ma) and the range was 82.45 to 86 ma. USDA's estimate for corn planted acres was 87 ma. This was a 2.5 ma change from USDA's March report.
The wheat market is oversold. The USDA found another 1.137 ma of planted wheat. Kansas wheat production is probably above expectations. Some analysts are predicting an increase in U.S. wheat ending stocks. In the June report, the USDA predicted that U.S. 2008/09 wheat ending stocks would be 669 million bushels and 2009/10 ending stocks would be 647 mb. Ending stocks near 700 mb could result in price below $5. All this information is already factored in current prices. Unless something changes to reduce wheat stocks, I expect December Oklahoma cash prices to range from $4.50 to $4.80.
The KCBT July '10 wheat contract price closed this week at $6.17. Using a minus 75 cent basis for June '10 delivered, the market is offering $5.42. The current central Oklahoma wheat price is about $5. Unless 2010 winter wheat planted acres are less than 41 ma, there are problems producing the 2010 U.S. wheat crop, or something happens to significantly reduce 2009/10 world wheat production, Oklahoma June 2010 wheat prices could be $4.50 or less.
There is a 50/50 chance that wheat prices have bottomed, at least for the next few weeks. If you cannot risk lower prices, sell all the wheat and do nothing else. If you can afford some risk, this may be the year to sell up to one-half of the wheat at harvest and the remainder in September, October and November. The odds of storing wheat producing a higher net price than the market offers today is about 40 percent. There is a chance that the Dec contract price is at or near the bottom. If the Dec price breaks $5.70 next week, there is another potential 25 cents down in the market.
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."
