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Market Analysis

Friday, November 8, 2019

   The WASDE ending stocks estimates were above expectations for US corn (1.910 bb vs 1.817 bb) and US soybeans (475 mb vs 428mb) and below expectations for US wheat (1.014 bb vs. 1.035). World wheat ending stocks projections were very close to trade expectations. Russian wheat production was raised from 2.66 bb to 2.72 bb. 2.72 bb is in line with recent Russian wheat production estimates. Ukraine wheat production was also increased 6 mb.

   The November WASDE contained little to no support for grain prices. While there were only small overall changes in the wheat supply and demand situation, the 66 mb increase in Russian and Ukraine wheat production should have a negative price impact.

   Some analysts are predicting that Oklahoma's planted acres will be below last year's 4.2 million. Texas planted acres are projected to decline and Kansas' acres may be dramatically lower than last year. Since 2003, Oklahoma wheat acres have declined from 6.7 million to 4.2 million (2018). Texas wheat planted acres have declined from 6.6 million in 2003 to 4.5 million in 2018. Kansas acres declined from 10.5 ma to 6.9 ma. One analyst said that 2020 Kansas acres could fall as low as 6 million.

   There doesn't appear to be anything in the wheat market situation that supports higher wheat prices. If the KC December wheat contract price closes below $4.20 two consecutive days, prices will be expected to decline 10 to 20 cents. If the $4.20 price levels holds, wheat prices may continue to slowly wallow up.

Risk Management Strategies

Friday, November 8, 2019

   If you have wheat in storage, there is probably a 60 percent chance that price increases between now and January 1 will cover carry costs. 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."