Wheat Market Watcher Kim Anderson Thinks KC Wheat Market Has Established a BottomTue, 15 Jul 2014 04:53:27 CDT
Oklahoma State University's Extension Grain Marketing Economist Kim Anderson has released his latest analysis of the Hard Red Winter Wheat Market- he has posted it on his website as well as provided it to us and follows:
"After July’s USDA’s WASDE reports were released, the KC September wheat contract price closed down 11 cents at $6.36. Wheat prices were up Monday morning July 14. 2014/15 marketing year hard red winter wheat production came in at 703 million bushels (mb) and ending stocks came in at 185 (mb). Both were relatively close to trade expectations. One surprise may have been USDA’s lowering of 2013/14 HRW wheat domestic use 33 mb and increasing ending stocks from 200 mb to 235 mb.
"Another surprise may have been the USDA increasing spring wheat production estimate 64 mb. This was calculated by noting a 14 mb decrease in USDA projected winter wheat production and a 50 mb increase in total wheat production. The average of the trades all wheat prerelease estimates was 20 mb lower than the USDA all wheat estimate. The average of the trade’s winter wheat production estimates was 17 mb higher than USDA’s estimate. This is positive for HRW wheat prices. The July WASDE estimates support the belief that HRW wheat stocks are tight and will remain tight through the 2014/15 marketing year. One problem with HRW wheat is that the average protein level is near 14 percent which may be too high for bread flour. The protein premium may be inverted (higher price for lower protein).
Given that U.S. 2014/15 wheat marketing year production is projected to be 7.7 percent of world wheat production and that U.S. wheat exports are projected to be 16.2 percent of world wheat exports, foreign wheat production will be the major determinant of the 2014/15 marketing year wheat price trend. This trend is normally established in the late-August/September time period.
"The KC September wheat contract price has support at $6.36. Closes below $6.36 will imply a price target of $6. The Sept contract has resistance at about $6.68. Closes above $6.68 will imply a price target of $6.90 to $7. I personally believe that the KC HRW wheat contract price has established a bottom. That doesn’t mean that the contract price won’t test $6, but I put the odds against it.
"If you have a written marketing plan, follow it. If not, consider storing wheat until the October/November time period. I put the price risk at 45 cents plus about 20 cents storage. An alternative is to sell wheat and buy "near-the-money" Dec or March Call option contracts. The KC Dec call provides price protection until November 20 and the March call provides price protection until Feb 20. If you haven’t sold any wheat consider selling in one-third to one-fourth lots between now and Jan 1."
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