It's been nearly two months since I've written a Market Analysis and not much has happened. The 2017 hard red winter wheat ratings have improved. In early March, yields were expected to be slightly below average. Now yield expectations for wheat that was top dressed with nitrogen are above average. Yields on wheat without a nitrogen application are expected to be average at best.
Hard red winter (HRW) wheat export sales are 103 percent higher than last year. This may imply that demand is relatively strong for U.S. HRW wheat. Given that the next export wheat to be harvested is U.S. HRW, demand should be relatively strong at harvest for good milling quality wheat. If harvest wheat test weights are above 59 pounds and protein is above 11.5, demand could result in a 20 cent improvement in the basis and a higher KC July wheat contract price.
Wheat production in Russia and Ukraine is projected to be above average but less than last year. Australia's wheat production is projected to be up to 20 percent less than last year. U.S. wheat production is projected to be 1.9 billion bushels (bb) compared to 2.3 bb last year. U.S. HRW wheat production is projected to be less than 800 million bushels (mb) compared to 1.08 bb last year. Lower production may be offset by increased ending (beginning) stocks.
The market is currently offering between $3.35 and $3.60 for wheat delivered to Oklahoma elevators during the 2017 wheat harvest. I expect the price to be 30 to 40 cents higher at harvest. History shows (2010 and 2012) that a big price (more than $1) increase is probably not possible until the August/September time period and a $1 price increase will require lower than expected wheat production in foreign wheat areas.
The new crop forward contract price is around $3.40. If the harvest price is below $3.40, it will probably be because yields and production are higher than expected. That means a lower price may be partially be offset by higher yields. If you can afford the price risk, don't price 2017 wheat.
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."