OSU's Dr. Kim Anderson Offers Producers This Advice as They Make Marketing Decisions for Their Wheat CropTue, 13 Aug 2019 12:11:29 CDT
Oklahoma State University Extension Grain Market Economist Dr. Kim Anderson offered the following analysis of the wheat market. Based on his analysis, Anderson also offers his advice on how producers might adjust their marketing strategy moving forward.
"After the release of the August 12 WASDE, Dacoma, Oklahoma cash wheat prices fell to $3.68. Cash prices and the KC Wheat (hard red winter (HRW)) contract prices were down 29 cents for the day. This 29 cent price decrease may be due to a 36 million bushel (mb) increase in U.S. HRW wheat production, and a 25 mb increase in Other Spring wheat production combined with the corn production estimate being 13.9 billion bushels (bb) compared to the prerelease trade estimate of 13.2 mb. The final 'nail in the coffin' for Oklahoma’s wheat price may be the fact that average protein for 2019 HRW harvested wheat is about 11.3 percent when the market wants 12.5 percent protein wheat. Black Sea area wheat (Russia, Ukraine, and Kazakhstan) protein is expected to average above 12.5 percent.
"During the time period June 1 through August 12 this year, Burlington Oklahoma wheat prices averaged $4.28. During the same period last year, Burlington wheat prices averaged $5.24. Oklahoma wheat producers that harvested wheat this year averaged 40 bushels per acre, compared to 28 bushels per acre last year. Using Burlington’s average harvest price and 40 bushels per acre, the income per acre is $171.00 compared to $147.00 last year. A 110 mb wheat crop at $4.28 has a value of $470 million (110 mb x $4.28) compared to 70 mb last year with a value of $366 million (70 mb x $5.24). It could be said that yield is more important than protein.
"Oklahoma’s 2019 harvested wheat averaged about 11.3 percent protein. In the Kansas City wheat market, 12.6 percent protein wheat has a 55 cent higher basis (price) than 11.3 percent wheat. At 40 bushels per acre, protein would add $22 per acre increasing the gross return per acre to $193.00.
"Black Sea wheat production is projected to be 4.23 bb compared to 4.067 bb last year. By exporting wheat during the 2018/19 wheat marketing year, Black Sea countries depleted beginning stocks from 575 mb to 393 mb ending stocks. Higher 2019 wheat production will offset the lower stocks, and 2019/20 Black Sea exports are expected to remain at 2.2 bb. The bottom line is that world hard wheat stocks will be about the same as last year. The difference is relatively low U.S. HRW wheat protein, which implies lower U.S. HRW wheat prices.
"Much of the wheat in Oklahoma elevators may need to go to the feed market. A relatively large corn crop will keep pressure on Oklahoma wheat prices and the corn harvest has not started. Not much carry is present in the market (the September/December spread is 19 cents), and the basis remains relatively strong. Nine out of the last 11 years, wheat should have been sold before September 1. Producers should consider staggering wheat into the market; 410 KC December call options can be bought for about 20 cents. March 420 calls are about 25 cents. Producers should consider stopping storage costs by selling wheat and buying calls."
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