Kim Anderson Outlines Wheat Marketing OptionsMon, 07 Jul 2014 11:59:36 CDT
Will wheat farmers even see $7 wheat again? That was the question posed to Kim Anderson, Oklahoma State University Grain Marketing Economist on last weekend's edition of SUNUP. Anderson responds with the answer that it is impossible to predict commodity prices. With no crystal ball in hand, Anderson recommends farmers watch the volatility to see what the prices are doing. Click on the LISTEN BAR below to hear Anderson's full report, as produced by Oklahoma State University's Ag Communications Department.
"Right now we are bidding off the September KC contract, Anderson said. "If you look at the support prices, that price is about $6.70 - 6.75 right now".
"It's got weak support at $6.80 and stronger support at $6.40," Anderson said. "That means that it's probably going to touch those points, bounce a little bit and either go on down or turn back up."
Anderson says if the price comes back up there is resistance at $7 and resistance at $7.40 a bushel. Seven dollars has been seen as top end of the market, but how much lower can prices go? While the US is short of wheat, Anderson says there is a lot of wheat around the world.
"You can look at last year the bottom was at $5.92 and for the marketing year the top was at $8.09," Anderson said.
In looking at the Oklahoma average monthly prices, which he calls more realistic cause farmers will not sell at the top or at the bottom of the market. Last year the bottom was $6.10, after storage and interest and the top was at $7.35, which was at harvest.
Anderson prefers to market wheat by selling one third at harvest, one third in the September-October time frame and one third in the November-December time frame, as it provides dollar cost averaging, but there are some other options to consider this year. Anderson says if you can't afford any risk, you need the money, you call sell all your wheat today for about $6.65/bushel. Option 2 is you can store wheat to market later. He says if you store the crop until December 1, your break-even price after subtracting storage is $6.50 to break-even with selling it today. One strategy Anderson likes this year is to sell it and buy a call option contact.
"A Kansas City December call option contract will cost 35 cents," Anderson said. "In that case you sell all your wheat for $6.65."
"You subtract the 35 cents off of it and that's $6.30 net," he said. "With a call option, farmers will save about 15 -16 cents because the crop will not be put in storage, so that increases the actual net around $6.45."
That option provides protection til about November 21st.
Anderson says if farmers want more protection, then buy a March Call Option contract for a nickel more. That will provide protection until about February 20th, 2015.
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