Agricultural News
Kim Anderson of OSU--Sell Wheat Into This Rally
Fri, 18 May 2012 18:07:05 CDT
We've witnessed a rally in wheat on the Kansas City and Chicago Boards of Trade this week. It was unexpected as harvest is now underway on the Southern Plains. The price has gained 90 cents in the last four days.
Ron Hays spoke with Dr. Kim Anderson, a grain marketing specialist with Oklahoma State University at the Lahoma Wheat Field Day about the significance of the rally.
"I think the significance of the rally is looking at that down trend that started late last winter and has gone on all throughout the spring. If this price holds today, then we will have broken that down trend."
Anderson said the market will need to close above the $6.80 mark on Monday to confirm that the trend has indeed been broken. He said the move upward is not due to fundamentals, but more due to commodity fund positions in the market.
"The funds have been near record short on sold positions in the wheat market. The analysts have been talking about this for the last six to eight weeks that they were record short, talking about when are they going to get out of those short positions? It looked to me like they would want to hold the short positions as we got into harvest as the elevators bought the wheat and had to sell the board, then the funds would sell them their positions and take the profit.
"What we're seeing is the yields are lower than expected and the funds are seeing that these low prices are probably not going to hold and they're spinning out of them earlier than the trade had anticipated and earlier than they wanted to do."
Producers on the Lahoma tour are revising their yield estimates down about 30 percent from where they thought they would be a few weeks ago. Anderson said producers are finding a lot of light-colored heads that are short or empty of grain and he believes that condition extends across the entire state and up into Kansas.
"So you've got lower expected production in Oklahoma, in Kansas, in the United States. Soft wheat isn't coming in as high as expected."
Added to that, Anderson said, is that production in Europe and Australia is not matching expectations except in the Ukraine, but even at that, Ukraine was only expecting 40 to 50 percent of their regular crop.
"World production right now doesn't look like it will be as high as we thought it was going to be last week."
The lowered production estimates are driving the markets higher for now, and Anderson said he thinks it is a good idea for producers to sell into the rally.
"You just don't know what is going to happen in this market. There is a lot of uncertainty. The market is giving you almost a dollar more than it was going to pay you early Monday morning. I think it's a wise move to sell into that. It's going to allow producers to sleep at night. If we get into next week and the funds say, Oops! We want to stay short. We're going to sell into the market rather than buying their positions out of it and we lose a dollar, you're going to lose a lot of sleep. If it goes up another dollar you might regret selling a little bit, but you're going to sleep at night because you've got some more wheat to sell. I think it's a wise choice to sell some wheat into this price rally."
You can hear the full conversation between Ron Hays and Kim Anderson by clicking on the LISTEN BAR below.
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