Agricultural News
Put Wheat in Government Loan Program Advises OSU's Dr. Kim Anderson
Fri, 19 Aug 2016 15:22:25 CDT
Oklahoma State University Extension Grains Market Analyst Dr. Kim Anderson recently released his latest analysis on the current outlook of the wheat market in Oklahoma. He shares his findings with Radio Oklahoma Network below and offers strategy advice for producers marketing their grain.
"KC wheat contract price may be developing a weak uptrend. The September contract price needs to close above $4.40 ($4.30 would be a good signal) and the December contract price must close above $4.60 ($4.50 good signal). Given record or near record Australian, Canadian, and Russian wheat production and the fourth record world wheat crop (27.3 billion bushels) in a row, the odds of a significant price move is relatively small. The odds that wheat prices have bottomed out are probably about 75 percent.
"Variable costs for 2017 Oklahoma wheat production is estimated to be between $140 and $185 per acre (without a land charge). Using 35 bushels per acre, the break-even price would be between $4 and $5.30 per bushel. With a KC July17 wheat contract price of $4.75 and a minus 95 cent basis, wheat may be forward contacted for June 2017 delivery for $3.80. A $40 land charge would add $1.15 per bushel to the variable costs.
"There may be 10 million bushels of wheat in bunkers or sacks in Oklahoma alone. With an expected relatively large corn and sorghum harvest, storage space is expected to remain tight. On June 1, 2015, Oklahoma off-farm wheat stocks were 39.5 mb and production in 2015 was 98.8 mb. On June 1, 2016, Oklahoma off-farm wheat stocks were 70.2 mb and 2016 wheat production is projected to be 132 mb. 2016 wheat is significantly better quality than 2015 wheat. But, if 98.8 mb production results in a 31 mb increase in Oklahoma off-farm ending stocks, how much will 132 mb production increase off-farm ending stocks? And how much lower will the price fall?
Marketing Strategies
"About a 30 cents downside price risk exists. Consider putting wheat in the government loan program (MAL), which will provide nine months to take advantage of higher prices. If higher prices do not materialize, the risk is nine months' storage costs. At four cents per month storage cost and a little interest, that is a total of about a 40 cents price risk."
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