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Market Analysis

Friday, September 13, 2019

   The KC December wheat contract price closed above $4 and that is good news. The contract has resistance at about $4.10. Two closes above $4.10 would imply a target price of $4.30. Recent sideways movements and contract price increases broke the short-run down-trend. Two closes above $4.30 would establish a short-run up trend. To break the long-run down-trend that was established in August 2018, the KC December wheat contract needs to close above $4.40.

   The September WASDE (World Agricultural Supply and Demand Estimates) was neutral to positive for wheat. The only change from the August WASDE for wheat was the lowering of the estimated average annual wheat price from $5 to $4.80. Since June 1, Burlington Oklahoma cash wheat prices have averaged $4.14 and the current price is $3.77, $1.03 below the estimated U.S. average annual price. World wheat ending stocks were increased 41 million bushels (mb) to a record 10.5 billion bushels (bb).

   Russia wheat production was lowered from 2.682 bb to 2.664 bb. Ironically, on August 11, SovEcon raised projected 2019 Russian wheat production to 2.752 bb. The September WASDE did not change Argentine wheat (currently experiencing dry conditions) and decreased Australian wheat production from 772 mb to 698 mb. Australia's five-year average production is 853 mb.

   U.S. corn production was lowered from 13.9 bb to 13.8 bb. The trade was projecting 13.67 bb. Overall, the WASDE was semi-bullish for wheat prices. There may be more than a 60 percent chance for slightly higher wheat prices over the next few months.

Risk Management Strategies

Friday, September 13, 2019

   Ten out of the last 11 years, wheat should have been sold before September 30. Producers should consider staggering wheat into the market; KC December call options can be bought for about 17 cents. KC March 420 calls are about 20 cents. Producers should consider stopping storage costs by selling wheat and buying calls. Corn crop condition reports and analyst estimates of corn production will determine if wheat and corn prices break out of the current price ranges. If corn goes down, expect wheat to follow.

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."