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Market Analysis

Friday, July 19, 2019

   There was a 26-cent rally followed by a 34-cent decline. By the end of the week, producers were about 4 cents worse off than when the rally started. Uncertainty in the wheat market is mostly driven by U.S. hard red winter (HRW) wheat production (quality and quantity), Black Sea area production, and uncertainty in the U.S. corn market. Unless something happens to Black Sea wheat production, there's not much hope of significantly higher wheat prices.

   The July 2019 WASDE report showed a slight reduction in HRW wheat and soft red winter (SRW) wheat production and 45-million-bushel reduction in hard spring (HS) wheat production. The problem may be that HRW wheat protein is averaging about 11.3 percent compared to a HRW wheat market need of 12 percent and export need of 12.5 percent protein wheat. SRW protein is averaging above 11 percent. The CBT wheat contract prices show that SRW contract price is 62 cents higher than the HRW wheat contract price.

   Black Sea wheat production (Russia, Ukraine, and Kazakhstan) is projected to be 4.31 billion bushels (bb) compared to 4.10 bb in 2018/19 and 4.7 bb in 2017/18. Black Sea wheat exports are projected to be 2.35 bb compared to 2.23 in 2018/19 and 2.51 in 2017/18. Since 2007/08, Black Sea exports have increased from about 800 mb to nearly 2.4 bb projected in 2019/20. This may have saturated the world market with hard wheat at a "bargain" price. When the Black Sea has exported its marketing year supply, the world demand is mostly for SRW wheat.

   The EU and U.S. are the main suppliers of SRW wheat. U.S. SRW wheat production has declined from over 500 mb in 2013/14 to a projected 259 mb for 2019/20. For the last 10 marketing years, EU's wheat production has ranged between 5.1 and 5.9 bb and averaged 5.3 bb.

Risk Management Strategies

Friday, July 19, 2019

   Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. There's about a 20 percent chance that lower Russian wheat production could result in relatively higher prices during the October and November 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."