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Market Analysis

Friday, March 15, 2019

   Between February 4 and March 11, the KC May wheat contract price declined from $5.18 to $4.20 (98 cents). The KC May price at this writing is $4.34. If you go back to October 16, 2018, the KC May contract price was $5.64. One reason for lower prices may be that hard red winter (HRW) wheat export sales were well below expectations (below where they needed to be) and U.S. HRW wheat prices were above competitors prices. At current price levels, HRW is competitive on the world market and export sales have increased from about 30 percent below 2017/18 marketing year export sales to about 9 percent below.

   HRW wheat crop conditions are improving. However, relatively low prices may result in a higher percentage of abandoned acres. Some early planted wheat has excess rye, cheat, and other non-wheat plants that will result in excess foreign material. These acres may be grazed-out, bailed for hay, or turned under as green manure and the land planted to a summer crop.

   Russian and Ukrainian export sales and shipments indicate that the Black Sea area has a limited amount of exportable wheat to sell. If export shipments continue at the present rate, both Russia and Ukraine will have shipped nearly all this year's exports by the end of April. The caveat is that Russia continues to find an unexpected supply of wheat.

   Prices indicate that they have bottomed out for a while. The harvest price will depend on export demand and wheat quality.

Risk Management Strategies

Friday, March 15, 2019

   Wheat may be forward contracted for $4.32 (-10 cent basis) in northern Oklahoma and $4.22 (-20 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 10 cents higher. This may be a sign to hold off forward contracting 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."