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Decision time for wheat marketing and risk management strategies
STILLWATER, Okla. – The Kansas City Board of Trade wheat contract broke through the $6.50 support level this past Thursday and continued on a downward trend on Friday.
“The support and target price is now $6.20, while the July contract low was $6.28 as of (June 12) and the settlement price was $6.37,” said Kim Anderson, Oklahoma State University Cooperative Extension grain marketing specialist on Friday, June 12.
If the KCBT July wheat contract breaks $6.20, there is a relatively high probability that the July contract price will reach $5.60, Anderson said, adding that there is some price support at about $5.90.
The central Oklahoma basis is about a minus 45 cents off the KCBT July wheat contract and the Texas Panhandle basis is about a minus 70 cents.
“Oklahoma wheat basis runs from about a minus 40 cents in the north to a minus 72 cents in the south,” Anderson said.
There were only minor changes in the USDA June Supply and Demand Reports. All U.S. wheat production was set at 2.02 billion bushels and ending stocks are projected to decline from 669 million bushels to 647 million bushels. World wheat production is projected to be 24.1 billion bushels, while world ending stocks are projected to increase from 5.5 billion bushels to 6.7 billion bushels.
“World wheat production would have to decline to about 22.9 billion bushels just to keep world wheat ending stocks at 5.5 billion bushels,” Anderson said.
The USDA did increase the projected average annual wheat price range to $4.90 to $5.90, with a $5.40 mid-point. USDA reported the mid-May U.S. price to be $6.02, compared to Oklahoma’s $5.73 price. Oklahoma’s average April price was $5.17 compared to the $5.74 April U.S. average price. Oklahoma’s cash price on June 12 closed between $5.62 and $5.94, mostly in the $5.79 to $5.92 range.
“The data implies that U.S. wheat prices have to decline at least 10 cents to reach the high USDA average annual price estimate and 60 cents to reach the $5.40 mid-point price,” Anderson said.
Kansas holds the short-term key to wheat prices.
“If Kansas’ wheat production is 340 million bushels or higher, wheat prices don’t stand much chance to recover,” Anderson said. “Slightly lower-than-expected Kansas production might just stop the price bleeding, at least for a little while.”
The general recommendation for producers who cannot afford to risk lower prices is to sell all their wheat and do nothing else.
“If you can afford some risk, however, this may be the year to sell up to half of your wheat at harvest and the remainder in September, October or November,” Anderson said. “If the KCBT July wheat contract price reaches $5.60 and/or the December contract price reaches $5.90, selling all the wheat and buying $5.90 at-the-money December call option contracts to offset 50 percent of the wheat sold is a strategy to consider.”
Given the above scenario, this would save about 15 cents storage cost and about 15 cents interest.
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REPORTER/MEDIA CONTACT:
Donald Stotts
Communications Specialist
Agricultural Communications Services
143 Agriculture North
Oklahoma State
University
Stillwater, OK 74078-0001
Phone: 405-744-4079
Fax: 405-744-5739
E-Mail: donald.stotts@okstate.edu
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