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Market Analysis

Thursday, January 2, 2020

   The reason for the 56 cent wheat price increase may be projected tight wheat stocks in the Black Sea exporting countries (Russia, Ukraine, and Kazakhstan), the lowest projected U.S. hard red winter (HRW) wheat stocks since 2015/16, a potential reduction in harvested wheat acres in 2020/21, and potential wheat production problems in Russia and Ukraine.

   The December WASDE lowered U.S. wheat ending stocks by 40 million bushels (mb); 10 mb each for HRW and hard red spring (HRS) wheat and 20 mb for Durum wheat. Total U. S. wheat ending stocks are projected to be the lowest in five years. World wheat ending stocks were increased 45 mb to a record 10.6 billion bushels. The world’s wheat stocks-to-use ratio is projected to be 38.4 percent, which is the highest since 1968.

   The stocks-to-use ratio is calculated by dividing ending stocks by total wheat use. The projected stocks-to-use ratio is 46 percent for U.S. wheat (down from 53 percent in 2018/19), 55 percent for U.S. HRW wheat (down from 70 percent), 38.4 percent for world wheat (up from 37.7 percent), and 11 percent for Russia and 4 percent for Ukraine. World wheat stocks are projected to be a record, but Black Sea stocks are projected to be very tight.

   KC wheat contract prices broke the long-run down trend that started in mid-August 2018. A short-run up trend has been established. The KC July wheat contract has support at about $5.00 and again at $4.65. If the KC July wheat contract price stays above $5.00, the price target will be about $5.25. The harvest contract basis is in the minus 35 to minus 40 cent range ($5 - $0.40 = $4.60).

Risk Management Strategies

Friday, December 20, 2019

   If you have wheat in storage, you may want take advantage of the 34-cent price increase by selling some of the stored wheat. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 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."