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Market Analysis

Friday, February 23, 2018

   The USDA released model projections for the 2018/19 wheat marketing year for all wheat. Key projections were production at 1.839 billion bushels (up 5.6% from 2017/18 and 10.6% below the five-year average), ending stocks of 931 million bushels (down 7.8% from 2017/18 and 4% above the five-year average). The 2018/19 average annual price was projected to be $4.70 compared to the projected 2017/18 price of $4.60.

   Between June 1, 2107 and December 31, 2107, U.S. wheat prices averaged $4.64 and Oklahoma wheat prices averaged $3.66 (U.S. 98 cents greater than Oklahoma) During the months of August through December 2017, the U.S. average price was $4.67 compared to Oklahoma's $3.43. Oklahoma's average price was $1.24 less the then the U.S. average price.

   For the 20-year period 1997/98 through 2016/17, Oklahoma prices averaged 10 cents less than U.S. prices. The largest negative average was 64 cents in 2010/11 and the highest positive was 44 cents in 2007/08. The reason 2017/18 Oklahoma wheat prices are averaging 98 cents less than U.S. prices may be relatively low protein.

   If Oklahoma's 2018 wheat has a test weight above 59 pounds and protein above 12 percent, the price spread may decline to near the minus 10 cent average and making Oklahoma's 2018/19 projected average annual price to be $4.60. Relatively low test weight and/or protein wheat crop could result in the average Oklahoma 2018/19 projected price being $3.70.

Risk Management Strategies

Friday, February 16, 2018

   A marketing strategy should include determining how much top-dress nitrogen will be applied and, if needed, whether fungicides will be used. From a price standpoint, why lock in a loss or very small profit? Normally, there is a price rally in late March and early April. Any big move in cash prices is not expected until the July through September time period.

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."