Crop Marketing & Risk Management

Professor Kim Anderson provides updates about the frequent fluctuations of the wheat market and advice on when to store or sell harvested grain. SUNUP TV has partnered with Dr. Anderson to cover the impact that the world wheat market has on Oklahoma producers. Stay caught up with weekly crop marketing videos.

Market Analysis & Risk Management Strategies

April 2, 2020

Market Analysis

Oklahoma wheat prices may peak in the June through August time period. Worldwide, consumers have been hoarding bread, pasta, flour and rice. Bakers have increased production, which has increased flour demand. In response, flour mills are increasing the production of flour, which increases the demand for wheat. Wheat prices are rising and some countries are releasing wheat out of reserves.

On the supply side, Russia appears to have decided to increase wheat stocks. (Russia's wheat ending stocks-to-use ratio was projected to be 10 percent compared to 43 percent for the U.S. and 31 percent for the world.) There is also concern that the COVID-19 lockdown in India and other countries may impact the 2020 world wheat harvest (harvest is starting in India, Pakistan, and North Africa) and that COVID-19 is impacting transport of commodities from the interior to the export market.

Another concern may be that the U.S. hard red winter wheat harvest starts in Texas in about six weeks and will be in Oklahoma the last of May. Producers may want to develop harvest strategies in the case that custom harvester movement is limited. Producers who harvest their own wheat may consider generating additional income by agreeing to custom harvest additional acres.

The good news is that Oklahoma and Texas wheat is the next wheat to be harvested that is available for export. The bad news is that the IGC's (International Grain Council) 2020/21 wheat marketing year world wheat production is a record 28.3 billion bushels. The world will start the 2020/21 wheat marketing year with a record 10.6 billion bushels in storage. These two records imply a record supply of world wheat for the 2020/21 wheat marketing year.

Risk Management Strategies

At this writing, wheat may be forward contracted for harvested delivery for $4.72 (KC July -20) in the Panhandle. Historically, the best time to sell Oklahoma wheat is during the June through August time period; however, producers may want to forward contract a small amount now.
March 24, 2020

Market Analysis

During the last seven trading days, wheat prices have increased between 62 and 67 cents. Wheat may be forward contracted for harvest delivery in Snyder, Oklahoma for $4.47, in Dacoma for $4.65, and in Medford for $4.79. These higher prices may be the result of China buying 12.5 million bushels of U.S. hard red winter (HRW) wheat and an increased demand by bakers to meet the increased demand for bread, pasta, and flour. Will these demands continue

In the February Agricultural Outlook Forum, the USDA projected U.S. 2020 wheat production to be 1.84 billion bushels (bb) compared to 1.92 bb last year. The IGC (International Grains Council) projects 2020/21 world wheat production to be a record 28.3 billion bushels (bb) compared to 28.1 bb in 2019/20. Analysts have projected that 2020 Russian wheat production will be 150 million bushels (mb) higher than last year. Kazakhstan's production is projected to be 100 mb higher, and Ukraine's wheat production is projected to be100 mb lower than in 2019. A net 150 mb wheat production increase is projected for the Black Sea exporters.

Analyst have projected a 120 mb decline in 2020 EU wheat production. Australia's wheat production is projected to increase 150 mb. IGC's 2020/21 wheat production estimate of a record 28.3 billion bushels is probably a pretty good estimate. Irrespective of the numbers, more than adequate wheat supplies are and will be available, so wheat prices are expected to remain relatively low.

The increased miller and baker demand may not last long, and who knows what China will do. If China buys more U.S. wheat, the odds are that prices will increase. If China does not buy more U.S. wheat, the result is uncertain.

Risk Management Strategies

At this writing, wheat may be forward contracted for harvested deliver for $4.67 (KC July -23) in Northern Oklahoma, $4.50 (-40) in Southern Oklahoma and $4.50 (-40) in the Panhandle. Historically, the best time to sell Oklahoma wheat is during the June through August time period, however, producers may want to forward contract a small amount now.
March 11, 2020

Market Analysis

World wheat production in the 2020/21 wheat marketing year is projected to be a record 28.3 billion bushels (bb) compared to 28.1 bb in 2019/20. In the U.S., wheat production is projected to decline 80 million bushels (mb) from 2019/20.

The big wheat market news that may be going unnoticed is raining in Australia. Australian farmers are buying wheat seed and may plant fence row to fence row. Australia's five-year average wheat production 2012 through 2016 was 926 mb. Australia's 2017 through 2019 average wheat production was 654 mb with 2019 wheat production at 558 mb. If Australia's 2020 wheat production is the average 926 mb, the potential increase in 2020/21's world exportable wheat could increase by 368 mb. Private analysts have projected a 150 mb increase in Australia's wheat production.

Analysts have projected that 2020 Russian wheat production will be 150 mb higher than last year. Kazakhstan's production is projected to be 100 mb higher and Ukraine's wheat production is projected to be 100 mb lower than in 2019. A net 150 mb wheat production increase is projected for the Black Sea exporters in 2020/21.

Australia's 150 mb increase plus the Black Sea's 150 mb increase and the United States 80 mb decrease implies a 220 mb increase in world wheat production. Adding 220 mb to the world's 2019/20 wheat production of 28.1 bb would make 2020/21 world wheat production be 28.32 bb. This number may be too low. Irrespective of the number, there will be more than adequate wheat, and wheat prices are expected to remain relatively low.

Risk Management Strategies

At this writing, wheat may be forward contracted for harvested deliver for $4.28 (KC July -22) in Northern Oklahoma, $4.05 (-45) in Southern Oklahoma and $4.15 (-25) in the Panhandle. Given the uncertainty in the market from the Coronavirus, it is probably best to stay out of the markets until things settle down. Historically, the best time to sell Oklahoma wheat is during the June through August time period.
January 2, 2020

Market Analysis

The reason for the 56 cent wheat price increase may be projected tight wheat stocks in the Black Sea exporting countries (Russia, Ukraine, and Kazakhstan), the lowest projected U.S. hard red winter (HRW) wheat stocks since 2015/16, a potential reduction in harvested wheat acres in 2020/21, and potential wheat production problems in Russia and Ukraine.

The December WASDE lowered U.S. wheat ending stocks by 40 million bushels (mb); 10 mb each for HRW and hard red spring (HRS) wheat and 20 mb for Durum wheat. Total U. S. wheat ending stocks are projected to be the lowest in five years. World wheat ending stocks were increased 45 mb to a record 10.6 billion bushels. The world's wheat stocks-to-use ratio is projected to be 38.4 percent, which is the highest since 1968.

The stocks-to-use ratio is calculated by dividing ending stocks by total wheat use. The projected stocks-to-use ratio is 46 percent for U.S. wheat (down from 53 percent in 2018/19), 55 percent for U.S. HRW wheat (down from 70 percent), 38.4 percent for world wheat (up from 37.7 percent), and 11 percent for Russia and 4 percent for Ukraine. World wheat stocks are projected to be a record, but Black Sea stocks are projected to be very tight.

KC wheat contract prices broke the long-run down trend that started in mid-August 2018. A short-run up trend has been established. The KC July wheat contract has support at about $5.00 and again at $4.65. If the KC July wheat contract price stays above $5.00, the price target will be about $5.25. The harvest contract basis is in the minus 35 to minus 40 cent range ($5 - $0.40 = $4.60).
December 20, 2019

Market Analysis

During the last six trading days, hard red winter wheat prices have increased 34 cents. Price movements between Thanksgiving and New Years are often deceiving. The number of buyers and sellers are normally lower than in early to mid-November and after January 1. So take the 34 cent price "with a grain of salt."

U.S. hard red winter (HRW) wheat exports for the 2019/20 wheat marketing year, as of Dec 12, are 52 percent higher than during the same period in 2018. The USDA projects 2019/20 marketing year (June 1 through May 30) HRW wheat exports to be 18 percent higher than 2018/19 HRW wheat exports. Relatively strong HRW wheat exports have occurred in spite of record world wheat production and projected record world wheat ending stocks. They have also occurred in spite of U.S. HRW's average protein content being 11.3 percent.

U.S. HRW wheat is being exported because HRW wheat prices have been at or below competitive exporters' prices. Note that competitive prices must include ocean freight costs. Russia and Ukraine are loading vessels for about $6.05 per bushel (FOB). The Texas Gulf spot price is $5.38. Using 22 cents handling and loading costs, the FOB Houston price would be $5.60. The 49 cent price difference could be used to offset the Black Sea exporters' ocean transportation advantage. Oklahoma wheat prices ($4.40) are about $1.24 below Houston's spot price.

Some analysts are predicting that Oklahoma's planted acres will be below last year's 4.2 million. Texas planted acres are projected to decline, and Kansas acres may be dramatically lower than last year. One analyst said that 2020 Kansas acres could fall as low as 6 million.

Risk Management Strategies

If you have wheat in storage, you may want to take advantage of the 34-cent price increase by selling some of the stored wheat. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 wheat.
December 6, 2019

Market Analysis

U.S. hard red winter (HRW) wheat exports for the 2019/20 wheat marketing year, to date, are 38 percent higher than during the same period in 2018. The USDA projects 2019/20 marketing year (June 1 through May 30) HRW wheat exports to be 15 percent higher than 2018/19 HRW wheat exports. Relatively strong HRW wheat exports have occurred in spite of record world wheat production and projected record world wheat ending stocks. They have also occurred in spite of U.S. HRW's average protein content being 11.3 percent. The Black Sea exporters continue to export 12.5 or higher protein wheat.

U.S. HRW wheat is being exported because HRW wheat prices have been at or below competitive exporters' prices. Note that competitive prices must include ocean freight costs. Russia and Ukraine are loading vessels for about $6.09 per bushel (FOB). The Texas Gulf spot price is $5.38. Using 22 cents handling and loading costs, the FOB Houston price would be $5.60. The 49 cent price difference could be used to offset the Black Sea exporters' ocean transportation advantage. Oklahoma wheat prices ($4.15) are about $1.27 below Houston's spot price.

Some analysts are predicting that Oklahoma's planted acres will be below last year's 4.2 million acres. Texas planted acres are projected to decline, and Kansas acres may be dramatically lower than last year. Since 2003, Oklahoma wheat acres have declined from 6.7 million to 4.2 million (2018). Texas wheat planted acres have declined from 6.6 million in 2003 to 4.5 million in 2018. Kansas wheat acres have declined from 10.5 million to 6.9 million. One analyst said that 2020 Kansas acres could fall as low as 6 million.

Nothing appears to be in the wheat market situation that supports significantly higher wheat prices. The KC March wheat contract has support at $4.25 and resistance at $4.50.

Risk Management Strategies

If you have wheat in storage, you probably have a 50/50 chance that price increases between now and January 1 will cover carry costs. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 wheat.
November 8, 2019

Market Analysis

The WASDE ending stocks estimates were above expectations for US corn (1.910 bb vs 1.817 bb) and US soybeans (475 mb vs 428mb) and below expectations for US wheat (1.014 bb vs. 1.035). World wheat ending stocks projections were very close to trade expectations. Russian wheat production was raised from 2.66 bb to 2.72 bb. 2.72 bb is in line with recent Russian wheat production estimates. Ukraine wheat production was also increased 6 mb.

The November WASDE contained little to no support for grain prices. While there were only small overall changes in the wheat supply and demand situation, the 66 mb increase in Russian and Ukraine wheat production should have a negative price impact.

Some analysts are predicting that Oklahoma's planted acres will be below last year's 4.2 million. Texas planted acres are projected to decline and Kansas' acres may be dramatically lower than last year. Since 2003, Oklahoma wheat acres have declined from 6.7 million to 4.2 million (2018). Texas wheat planted acres have declined from 6.6 million in 2003 to 4.5 million in 2018. Kansas acres declined from 10.5 ma to 6.9 ma. One analyst said that 2020 Kansas acres could fall as low as 6 million.

There doesn't appear to be anything in the wheat market situation that supports higher wheat prices. If the KC December wheat contract price closes below $4.20 two consecutive days, prices will be expected to decline 10 to 20 cents. If the $4.20 price levels holds, wheat prices may continue to slowly wallow up.

Risk Management Strategies

If you have wheat in storage, there is probably a 60 percent chance that price increases between now and January 1 will cover carry costs. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 wheat.
October 24, 2019

Market Analysis

Word on the street is that Oklahoma's planted acres will be below last year's 4.4 million. Texas planted acres are projected to decline and Kansas' acres may be dramatically lower than last year. Since 2003, Oklahoma wheat acres have declined from 6.7 million to 4.4 million (2018). Texas wheat planted acres have declined from 6.6 million in 2003 to 4.5 million in 2018. Kansas acres declined from 10.5 ma to 6.9 ma. One analyst said that 2020 Kansas acres could fall as low as 6 million. At this point in time, planted acre estimates are pure speculation.

However, if the projections are correct and the 2020 hard red winter wheat (HRW) crop averages 60 plus test weight with 12.5 plus percentage protein, and total production is less than 800 million bushels (mb), wheat prices could be in the $5.50 range. During June and early July 2020, U.S. HRW wheat quality and production will be keys to wheat prices. After 2020 Black Sea wheat enters the export market, Black Sea wheat prices will be the major determinant of U.S. wheat prices.

Protein is and will be a major component of wheat prices. Using ordinary protein (< 11 percent) as the basis, Kansas City wheat protein premiums are 37 cents for 11.4 percent (average 2019 HRW wheat protein) and $1.00 for 12.6 percent protein. Relatively high protein premiums should be available for the 2020 HRW wheat production. If the current forward contract price ($4.25) is based on 11.4 percent protein, the projected 2020 harvest price would be $4.88.

Since early September, Oklahoma wheat prices have increased about 40 cents. Reports indicate that world hard wheat export prices have increased about 45 cents. This implies that Oklahoma prices are following world export prices. Another signal that this is the case is that U.S. HRW wheat exports are 48 percent higher than last year. Price levels since June 1 have made U.S. HRW wheat competitive in the world market.

Risk Management Strategies

If you have wheat in storage, there is probably a 60 percent chance that price increases between now and January 1 will cover carry costs. As for pricing 2020 wheat, if there is a relatively high probability of 12 percent or higher protein, now is probably not a good time to price 2020 wheat.
October 4, 2019

Market Analysis

The KC wheat contract price traded above $4.10 for two days which sent a false signal that the $4.10 resistance price level had been broken. With market chatter about France underpricing the Black Sea exporters for another cargo of wheat to Egypt and the Black Sea Exporter's bid being below U.S. hard red winter prices, KC wheat contract price went back below $4.10. Resistance is at $4.10 and about $4.15.

Argentina is projected to harvest a record wheat crop. However, continued dry conditions may reduce Argentina's wheat production. Excess rain in North Dakota and Canada is reported to be lowering both quality and quantity of hard red spring wheat. Both of these events could result in higher prices. The problem is projected world wheat production and ending stocks. Good news is that the world and U.S. wheat stocks-to-use ratio is projected to decline.

France under-bid Russia for wheat sold to Egypt. The reported FOB (on board vessel) wheat price was $194.64/mt ($5.30/bu) and $211.98/mt ($5.77/bu) C&F (costs and freight). The equivalent FOB soft red wheat price out of New Orleans would be about $4.95. The current New Orleans SRW wheat price is $5.36. Every bushel that Russia doesn't sell to Egypt, indicates another bushel for sale to other importers that may be U.S. hard red winter wheat customers. Another report indicated that Argentina will harvest a record wheat crop. Argentina is a direct U.S. wheat export competitor.

With potentially higher Russia and Argentine wheat production and projected record world wheat production and ending stocks, and with relatively high corn production, the odds of significantly higher wheat prices are relatively small.

Risk Management Strategies

Ten out of the last 11 years, wheat should have been sold before September 30. If producers want to stay in the wheat market, consider selling wheat and buying March 420 call option contracts.
September 30, 2019

Market Analysis

Several things happened in the wheat market this week but very little happened to wheat prices and the basis didn't change. The KC wheat contract price traded between $4.02 and $4.125 with the KC Dec closes between $4.04 and 4.09. To continue the short-run uptrend (if there is one) the KC Dec contract price needs to close two consecutive days above $4.10.

Market chatter includes questions about Russian wheat production. On Sept 11, Russia released a wheat production estimate of 2.75 billion bushels (bb). On Sept 12, the Sept WASDE reported Russian wheat production to be 2.66 bb. Earlier this week, a Russian report estimated wheat production to be 2.87 bb. About 90 percent of the 2019 wheat acreage has been harvest. Private analysts estimate Russian wheat production to be 2.7 bb which shouldn't have much impact on wheat prices. Production of 2.87 bb could restrict upward wheat price movements.

France under-bid Russia for wheat sold to Egypt. The reported FOB (on board vessel) wheat price was $194.64/mt ($5.30/bu) and $211.98/mt ($5.77/bu) C&F (costs and freight). The equivalent FOB soft red wheat price out of New Orleans would be about $4.95. The current New Orleans SRW wheat price is $5.36. Every bushel that Russia doesn't sell to Egypt, indicates another bushel for sale to other importers that may be U.S. hard red winter wheat customers. Another report indicated that Argentina will harvest a record wheat crop. Argentina is a direct U.S. wheat export competitor.

With potentially higher Russia and Argentine wheat production and projected record world wheat production and ending stocks, and with relatively high corn production, the odds of significantly higher wheat prices are relatively small.

Risk Management Strategies

Ten out of the last 11 years, wheat should have been sold before September 30. If producers want to stay in the wheat market, consider selling wheat and buying March 420 call option contracts.
September 20, 2019

Market Analysis

The KC December wheat contract price is fighting the $4.10 resistance. Wednesday and Thursday's closes were $4.0975 and $4.095. Friday's KC Dec traded between $4.0675 and $4.1175 and closed at $4.075. Two KC Dec contract closes above $4.10 would imply a target price of $4.20. Recent sideways movements and contract price increases broke the short-run downtrend. Two closes above $4.30 would establish a short-run up-trend. To break the long-run downtrend that was established in August 2018, the KC December wheat contract needs to close above $4.40.

Russia sold hard milling wheat to Egypt for $211/mt C&F (cost and ocean freight). To compete, Oklahoma's wheat price would have to be $3.52 ($211 x 0.217216 = $5.74/bu.; - $0.82 C&F; -$0.20 handling; - $1.20 Houston/Oklahoma spread). The current Oklahoma wheat price is about $3.80. France offered soft red winter milling wheat to Tunisia for $210.48 C&F ($5.73). Adjusted to FOB New Orleans, the price would be about $4.91. New Orleans SRW wheat bid was $5.60. The Texas gulf HRW wheat price is $5.10.

Black Sea exporters (Russia, Ukraine, and Kazakhstan) are predicted to produce 4.151 billion bushels (bb) and use 4.284 bb. Black Sea exporters' ending stock are projected to be 369 million bushels with a stocks-to-use ratio of 9 percent. This implies that Black Sea exporters are projected to be essentially out of wheat by the beginning of the 2020/21 wheat marketing year. Any reduction in 2020 wheat production by the Black Sea exporting countries would have a positive impact on wheat prices.

Risk Management Strategies

Ten out of the last 11 years, wheat should have been sold before September 30. Producers should consider staggering wheat into the market; KC December call options can be bought for about 17 cents. KC March 420 calls are about 24 cents. Producers should consider stopping storage costs by selling wheat and buying calls. Corn crop condition reports and analyst estimates of corn production will determine if wheat and corn prices break out of the current price ranges. Expect wheat to follow corn prices.
September 13, 2019

Market Analysis

The KC December wheat contract price closed above $4 and that is good news. The contract has resistance at about $4.10. Two closes above $4.10 would imply a target price of $4.30. Recent sideways movements and contract price increases broke the short-run down-trend. Two closes above $4.30 would establish a short-run up trend. To break the long-run down-trend that was established in August 2018, the KC December wheat contract needs to close above $4.40.

The September WASDE (World Agricultural Supply and Demand Estimates) was neutral to positive for wheat. The only change from the August WASDE for wheat was the lowering of the estimated average annual wheat price from $5 to $4.80. Since June 1, Burlington Oklahoma cash wheat prices have averaged $4.14 and the current price is $3.77, $1.03 below the estimated U.S. average annual price. World wheat ending stocks were increased 41 million bushels (mb) to a record 10.5 billion bushels (bb).

Russia wheat production was lowered from 2.682 bb to 2.664 bb. Ironically, on August 11, SovEcon raised projected 2019 Russian wheat production to 2.752 bb. The September WASDE did not change Argentine wheat (currently experiencing dry conditions) and decreased Australian wheat production from 772 mb to 698 mb. Australia's five-year average production is 853 mb.

U.S. corn production was lowered from 13.9 bb to 13.8 bb. The trade was projecting 13.67 bb. Overall, the WASDE was semi-bullish for wheat prices. There may be more than a 60 percent chance for slightly higher wheat prices over the next few months.

Risk Management Strategies

Ten out of the last 11 years, wheat should have been sold before September 30. Producers should consider staggering wheat into the market; KC December call options can be bought for about 17 cents. KC March 420 calls are about 20 cents. Producers should consider stopping storage costs by selling wheat and buying calls. Corn crop condition reports and analyst estimates of corn production will determine if wheat and corn prices break out of the current price ranges. If corn goes down, expect wheat to follow.
September 6, 2019

Market Analysis

On Tuesday September 3, Oklahoma cash wheat prices declined about 13 cents to $3.55 in Burlington, Oklahoma. The 13 cent decline was the result of an 18-cent KC Dec Wheat contract price decline and a 5-cent basis increase. Later in the week, wheat prices gained back some of the KC Dec contract price loss. The bad news is that the KC Dec contract price closed below $4. Prices below $4 will indicate that the futures price downtrend will continue.

News this week includes speculation that Australia's wheat production will be less than currently projected. Other news reports that Russia wants to open new export markets. Opening new markets sounds threatening but Russia already is exporting all of its production. Selling to new markets, without increased production, should have little impact on the world wheat supply and demand situation.

Ukraine's record wheat harvest (1.02 billion bushels (bb)) is essentially complete. Probably 75 percent of Russia's 2019 wheat crop has been harvested. There are reports that Russia's final wheat production will be less than the projected 2.68 bb. Lower production should result in lower Russian exports. The stocks-to-use ratio for Black Sea exports is 10.1 percent for Russia, 5.1 percent for Ukraine, and 9.6 percent for Kazakhstan. The stocks-to use ratio for the U.S. is projected to be 46.7 percent and the world wheat stocks-to-use ratio is projected to be 37.6 percent. The Black Sea exporters essentially have no excess wheat stocks to export.

Relatively tight Black Sea wheat stocks set the stage for higher world wheat prices. Even if Russia harvested the projected 2.68 bb, beginning the 2020 wheat harvest there will be no excess wheat stocks to cover any loss in production. A very short 2020 wheat crop could result in a price increase like happened during the 2010/11 wheat marketing year when wheat prices increased from $3.36 on June 9, 2010 to $8.99 on February 9, 2011. It's too late for this to happen during the 2019/20 marketing year.

Risk Management Strategies

Nine out of the last 11 years, wheat should have been sold before September 1. Producers should consider staggering wheat into the market; 390 KC December call options can be bought for about 17 cents. KC March 410 calls are about 20 cents. Producers should consider stopping storage costs by selling wheat and buying calls. Corn crop condition reports and analyst estimates of corn production will determine if wheat and corn prices break out of the current price ranges. If corn goes down, expect wheat to follow.
August, 29, 2019

Market Analysis

Much of the 2109 harvested hard red winter wheat is being sold in the feed market. Thus, wheat and corn prices appear to be correlated with corn leading. On August 13 (after the August 12 WASDE report), corn price established a weak down-trend between $3.65 and $3.80. There are signs that corn prices have established a sideways pattern. On August 13, KC December contract wheat prices established a sideways pattern between $3.97 and $4.10.

For wheat prices to increase, corn production must end up less than USDA's projected 13.9 bb and closer to the trades' 13.2 bb estimate. I believe that the market is trading closer to USDA's estimate which may depend on the NOAA's (National Oceanic and Atmospheric Administration) temperature forecast of relatively high odds that temperatures will be above average and that precipitation will be near normal for the next three months.

Ukraine's record wheat harvest (1.02 billion bushels (bb)) is essentially complete. Two thirds of Russia's 2019 wheat crop has been harvested. There are reports that Russia's final wheat production will be less than the projected 2.68 bb. Lower production should result in lower Russian exports. The stocks-to-use ratio for Black Sea exports is 10.1 percent for Russia, 5.1 percent for Ukraine, and 9.6 percent for Kazakhstan. The stocks-to use ratio for the U.S. is projected to be 46.7 percent and the world wheat stocks-to-use ratio is projected to be 37.6 percent. The Black Sea exporters essentially have no excess wheat stocks to export.

Relatively tight Black Sea wheat stocks set the stage for higher world wheat prices. Even if Russia harvested the projected 2.68 bb, there will be no stocks to export if the Black Sea countries have below-average production in 2020. A very short 2020 wheat crop could result in a 2010/11 wheat marketing year price increase: $3.36 on June 9, 2010 to $8.99 on February 9, 2011. It's too late for this to happen during the 2019/20 marketing year but lower Russian, Argentine, and Australian production would help wheat prices.

Risk Management Strategies

Nine out of the last 11 years, wheat should have been sold before September 1. Producers should consider staggering wheat into the market; 400 KC December call options can be bought for about 17 cents. KC March 420 calls are about 21 cents. Producers should consider stopping storage costs by selling wheat and buying calls. Corn crop condition reports and analyst estimates of corn production will determine if wheat and corn prices break out of the current price ranges. If corn goes down, expect wheat to follow.
August 13, 2019

Market Analysis

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.

Risk Management Strategies

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.
August 5, 2019

Market Analysis

Last week's Market Analysis started with, "Things may start looking up for U.S. wheat prices. Two reports indicated that Russia's wheat production may not be as high as earlier expected..." Russian wheat production is less than expected. The problem is that Ukrainian wheat production and production in other hard wheat (hard red winter, hard red spring, and hard wheat) exporting countries more than offset Russia's lower production. The hard wheat exporting countries are Argentina (735 million bushels (mb)-up 3 percent from 2018), Australia (772 mb-up 21 percent), Canada (1.224 billion bushels (bb)-up 5 percent), Kazakhstan (514 mb-even), Russia (2.276 bb-up 4 percent from last year but down from earlier expectations of 2.285 bb), Ukraine (record 1.066 bb-up 16 percent) and the U.S. hard wheat (1.346 bb-up 8 percent). Total hard wheat exporters' production is projected to be 7 percent higher than in 2018/19.

Another negative factor for U.S. hard red winter (HRW) prices is protein. To date, the protein level of the U.S. HRW wheat is averaging 11.2 percent. Oklahoma, Texas and Kansas wheat averaged about 11.3 percent. Reports indicate that about 70 percent of Ukraine's harvested wheat will be milling quality with 12.6 percent protein compared to 55 percent milling quality last year. Reports indicate a shortage of feed wheat in Ukraine and Ukrainian feed wheat prices have increased relative to milling quality wheat. Russian wheat protein has averaged 13 percent. Ukraine's wheat harvest is about 85 percent complete and Russia's about 50 percent.

A positive price factor is corn prices above wheat prices and feedlots are using wheat in lieu of corn. If the corn crop deteriorates and/or planted acres (production) are less than expected, higher corn prices could support wheat prices. The odds of this happening is declining daily.

As you can tell, I'm pessimistic about wheat prices. This may be the only good price news.
July 26, 2019

Market Analysis

Things may start looking up for U.S. wheat prices. Two reports indicated that Russia's wheat production may not be as high as earlier expected. In the July WASDE, the USDA lowered Russia's wheat production to 74.2 metric ton (mt) down from 78 mt (2.865 billion bushels (bb) to 2.726 bb). Russian grain analysist's (SovEcon) estimate is 73.7 mt (2.707 bb). Russia has harvested about 40 percent of their 2019/20 wheat. Ukraine has harvested about 80 percent of the projected 1.07 bb record wheat crop. SovEcon also lowered Russian wheat exports 6.2 mt to 31.4 mt compared to36 mt during 2018/19.

Another positive factor is record heat in the European Union. The USDA reduced EU's wheat production estimate from 5.65 bb to 5.56 bb. Continued hot, dry weather will probably result in even lower production. The EU produces and exports mostly soft red winter (SRW) wheat which competes with U.S. SRW wheat and U.S. hard red winter wheat in the northern Africa and Asian markets.

Australia's five-year average wheat production is 853 mb. Australia is projected to harvest 772 mb compared to 36 mb in 2018 and 769 mb in 2017. Both Argentina and Canadian are projected to harvest above average crops. The seven hard wheat exporters (Argentina, Australia, Canada, Kazakhstan, Russia, Ukraine, and the U.S.) are projected to produce 8.38 bb compared to 8.69 bb in 2018 and a five-year average of 8.21 bb. If Russian wheat production continues to decline, wheat prices will increase.

Another factor is corn prices above wheat prices and feedlots using wheat in lieu of corn. If the corn crop continues to deteriorate and planted acres are less than expected, higher corn prices should cause wheat prices to increase.

Risk Management Strategies

Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. There's about a 20 percent chance that lower Russian wheat production could result in relatively higher prices.
July 19, 2019

Market Analysis

There was a 26-cent rally followed by a 34-cent decline. By the end of the week, producers were about 4 cents worse off than when the rally started. Uncertainty in the wheat market is mostly driven by U.S. hard red winter (HRW) wheat production (quality and quantity), Black Sea area production, and uncertainty in the U.S. corn market. Unless something happens to Black Sea wheat production, there's not much hope of significantly higher wheat prices.

The July 2019 WASDE report showed a slight reduction in HRW wheat and soft red winter (SRW) wheat production and 45-million-bushel reduction in hard spring (HS) wheat production. The problem may be that HRW wheat protein is averaging about 11.3 percent compared to a HRW wheat market need of 12 percent and export need of 12.5 percent protein wheat. SRW protein is averaging above 11 percent. The CBT wheat contract prices show that SRW contract price is 62 cents higher than the HRW wheat contract price.

Black Sea wheat production (Russia, Ukraine, and Kazakhstan) is projected to be 4.31 billion bushels (bb) compared to 4.10 bb in 2018/19 and 4.7 bb in 2017/18. Black Sea wheat exports are projected to be 2.35 bb compared to 2.23 in 2018/19 and 2.51 in 2017/18. Since 2007/08, Black Sea exports have increased from about 800 mb to nearly 2.4 bb projected in 2019/20. This may have saturated the world market with hard wheat at a "bargain" price. When the Black Sea has exported its marketing year supply, the world demand is mostly for SRW wheat.

The EU and U.S. are the main suppliers of SRW wheat. U.S. SRW wheat production has declined from over 500 mb in 2013/14 to a projected 259 mb for 2019/20. For the last 10 marketing years, EU's wheat production has ranged between 5.1 and 5.9 bb and averaged 5.3 bb.

Risk Management Strategies

Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. There's about a 20 percent chance that lower Russian wheat production could result in relatively higher prices during the October and November time period.
July, 12, 2019

Market Analysis

For an Oklahoma wheat harvest report, go to https://www.okwheat.org/index.php scroll down to and click Harvest Report 2019. After the WASDE report was released on Thursday, July 11, Oklahoma wheat price increased about 25 cents per bushel with Burlington Oklahoma's wheat price increasing to $4.45. The USDA/WASDE report projected the 2019/20 wheat marketing year average U.S. wheat price to be $5.20. During the 2018/19 wheat marketing year, U.S. wheat prices averaged $5.20 and Oklahoma's wheat prices averaged $5.15. The five-year average monthly wheat sales for Oklahoma indicate that about 45 percent of Oklahoma's wheat is normally sold by August 1. The average Oklahoma wheat price since June 1 has been about $4.40.

Reasons for the 25-cent wheat price increase may include U.S. hard wheat (hard red winter plus hard red spring wheat) production was lowered 45 million bushels (1.381 bb to 1.346 bb). More importantly, Black Sea wheat production was lowered 169 million bushels (mb).

Negative hard red winter (HRW) wheat price factors include world wheat ending stocks were projected to be a record 10.5 bb, a reported sale price of Russian wheat to Egypt was $5.31 FOB (free on board) and relative low Oklahoma wheat protein levels. To load Oklahoma wheat FOB Houston would be about $3.75.

Harvested 2019 U.S. HRW wheat is averaging about 11.3 percent protein and 60.1 pound test weight. Using Ordinary <11%) protein as the base, the Kansas City protein premium is 21 cents for 11%, 28 cents for 11.4%, 38 cents for 11.6%, and 58 cents for 12% or higher. Some elevators are paying protein premiums.

Risk Management Strategies

Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. Lower Russian wheat production could result in relatively higher prices during the October and November time period.
July 8, 2019

Market Analysis

For an Oklahoma wheat harvest report, go to https://www.okwheat.org/index.php scroll down to and click Harvest Report 2019. Cash wheat prices declined about 20 cents last week and with a 15 cent price decline on Monday July 1. with most Oklahoma cash wheat prices ending in the $4.15 to $4.25 range. The market rolled bids from the KC July '19 contract to the KC Sept '19 contract. The 10 cent KC Sept price premium over the KC July '19 price resulted in a 10 cent decline in the basis without any impact on cash prices.

Lower price may be the result of above average yields and below average protein. The wheat harvest also started earlier than normal in Ukraine and Russia. Russia is reported to be selling 12.5% protein wheat FOB (free on board-vessel) for $195/MT or $5.31 per bushel. At $191/MT FOB, Houston, Oklahoma wheat would need to be priced at about $3.85. Russia also has about a 45 cent ocean freight cost advantage into the North African and eastern Asian markets.

For the 2018/19 wheat marketing year, Oklahoma wheat prices averaged about 42 cents less than the average price for all U.S. wheat. In the June WASDE, the USDA projected the average annual 2019/20 U.S. wheat price to be $5.10. If Oklahoma's 2019/20 marketing year average price is 42 cents less than the WASDE projected $5.20, Oklahoma's average annual projected wheat price would be $4.78.

Oklahoma's 2017 wheat crop averaged 10.9 percent protein and the 2016 wheat crop averaged 11 percent protein. The spread between the U.S. wheat price and the Oklahoma wheat price was 74 cents in 2107 and 45 cents in 2016. Using the 2017/18 marketing year spread (-74 cents), implies an Oklahoma 2019/20 wheat marketing year price of $4.46. The only good news is that hot, dry weather may be reducing the Russian wheat crop. Market analysts indicate that the hot, dry weather is supporting Ukraine harvesting a record wheat crop. Ukraine's above average production may offset any reduction in Russia's crop.
July 1, 2019

Risk Management Strategies

Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. Lower Russian wheat production could result in relatively higher prices during the October and November time period.
June 21, 2020

Market Analysis

For an Oklahoma wheat harvest report, go to https://www.okwheat.org/index.php scroll down to and click Harvest Report 2019. Cash wheat prices increased about 17 cents this week with most Oklahoma cash wheat prices in the $4.60 to $4.75 range.

The KC September contract has paused in the $4.60 to $4.80 range. Note that the CBT September wheat (SRW) futures contract is priced about 62 cents above the KC September wheat (HRW) contract. This may reflect reductions in projected SRW wheat production due to excess rain. Another reason may be that Black Sea wheat exporters meet or exceed the world's need for hard wheat. After buying Black Sea wheat, importers mostly need soft red winter wheat that they import from the EU, US, or other suppliers. Higher export demand for SRW relatively to HRW wheat would result in a SRW wheat price premium over HRW wheat prices. If the latter situation is correct, the price premium may hold throughout the 2109/20 wheat marketing year.

In the June WASDE, the USDA raised the 2019/20 wheat marketing year U.S. average wheat price to $5.10. Given that Oklahoma's average annual wheat price averages 24 cents less than the U.S. price, Oklahoma's 2019/20 average price is projected to be $4.86. Over the last 10 years, Oklahoma's average price has averaged as much as 32 cents more than and 74 cents less than the U.S. average price. In April 2019, the Oklahoma average monthly price was 84 cents less than the average U.S. price.

Risk Management Strategies

Given that research shows that in 9 of the last 11 years wheat should have been sold in the June through August time period, consider selling 1/3 of the wheat across the scales and another 1/3 before August 30. Hot, dry conditions have been reported in some Russian wheat areas may reduce Russian wheat production. Lower Russian wheat production could result in relatively higher prices during the October and November time period.
June 14, 2019

Market Analysis

For an Oklahoma wheat harvest report, go to https://www.okwheat.org/index.php scroll down to and click Harvest Report 2019. Cash wheat prices increased about 17 cents this week with most Oklahoma cash wheat prices in the $4.60 to $4.75 range.

Higher price may have been because of relatively good export demand and news that Mexico is projected to import more U.S. wheat in the 2019/20 marketing year than during the 2018/19 marketing year. Mexican buyers imply that price, quality and transportation costs are more important than the political situation. Mexico continues to develop alternate sources of wheat. Mexican buyers indicate that they will probably visit Russia this fall to evaluate the potential for buying Black Sea wheat. Reports also indicate that Mexico is attempting to buy wheat from Germany and Poland. Mexico is projected to import about 200 million bushels of wheat during the 2019/20 wheat marketing year.

In the June WASDE, the USDA raised the 2019/20 wheat marketing year U.S. average wheat price to $5.10. Given that Oklahoma's average annual wheat price averages 24 cents less than the U.S. price, Oklahoma's 2019/20 average price is projected to be $4.86. Over the last 10 years, Oklahoma's average price has averaged as much as 32 cents more than and 74 cents less than the U.S. average price. In April 2019, the Oklahoma average monthly price was 84 cents less than the average U.S. price.

Risk Management Strategies

Given that research shows that in 10 of the last 11 years wheat should have been sold in the June through September time period, consider selling 1/3 of the wheat across the scales and another 1/3 before September 30. Hot, dry conditions have been reported in some Russian wheat areas and may reduce Russian wheat production. Lower Russian wheat production could result in relatively higher prices during the October and November time period.
June 7, 2019

Market Analysis

After May 12, Burlington Oklahoma wheat prices increased about $1 to $4.64 and then declined back to $4.38. The price increase has been attributed to the managed funds reducing record short KC wheat and corn futures positions, excess moisture potentially reducing wheat yields and preventing corn/soybean planting, dry conditions in Canada and Australia and potential tariffs on imported products from Mexico. Potential weather problems (lack of rain) in wheat Russia areas are also having a positive impact on wheat prices.

The May WASDE (World Agricultural Supply and Demand Estimates) projected 2019/20 U.S. wheat prices to average $4.70. Over the last 10 years, Oklahoma average annual wheat price has averaged about 20 cents less than the U.S. wheat price, which projects an average annual 2019/20 Oklahoma price of $4.50. In the past, the USDA has placed (rough estimate) a plus or minus 40 cent bracket around the projected price. Recent years have had actual average annual prices in both the lower and higher quadrants of the estimates. The June WASDE will be released Tuesday, June 11.

Using a 40-cent bracket, Oklahoma's average annual 2019/20 wheat price has a 90 percent chance of being between $4.10 and $4.90.

Risk Management Strategies

Research using Oklahoma average monthly prices, shows that in nine of the last 11 years, producers would have received the highest net price if the wheat was sold before August 31. Five of the 11 years, the optimum month was June. The optimum month to sell wheat was once in July, three times in August and one time in September. If wheat had been sold in June every year, the average price would have been $5.85, $5.84 in July, $5.89 in August, and $4.50 in September.
June 7, 2019

Market Analysis

Since May 12, Oklahoma harvest forward contract prices have increased about 85 cents to $4.57 in some locations. The price increase has been attributed to the managed funds reducing record short KC wheat and corn futures positions, excess moisture potentially reducing wheat yields and preventing corn/soybean planting, and dry conditions in Canada and Australia.

Market reports indicate that U.S. wheat prices are now (at this writing) above world market prices. Part of the price problem is the Index of the U.S. dollar is over 98 compared to 94.2 in early January. This equates to about a 20 cent increase in price (export price not farm price) or $7.50 per metric ton.

The May WASDE (World Agricultural Supply and Demand Estimates) projected 2019/20 U.S. wheat prices to average $4.70. Over the last 10-years, Oklahoma average annual wheat price has averaged about 20 cents less than the U.S. wheat price which projects an average annual 2019/20 Oklahoma price of $4.50. In the past, the USDA has placed (rough estimate) a plus or minus 40 cent bracket around the projected price. Recent years have had actual average annual prices in both the lower and higher quadrants of the estimates.

Using a 40 cent bracket, Oklahoma's average annual 2019/20 wheat price has a 90 percent chance of being between $4.10 and $4.90.

Risk Management Strategies

Wheat may be forward contracted for $4.57 (-15 cent basis) in northern Oklahoma and $4.52 (-20 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat with 12.5 percent protein with 60 pound test weight may result in Oklahoma wheat price in the upper quadrant of the projected price range. Relatively low test weights and protein could result in prices in the low quadrant or the projected price range.
March 15, 2019

Market Analysis

Between February 4 and March 11, the KC May wheat contract price declined from $5.18 to $4.20 (98 cents). The KC May price at this writing is $4.34. If you go back to October 16, 2018, the KC May contract price was $5.64. One reason for lower prices may be that hard red winter (HRW) wheat export sales were well below expectations (below where they needed to be) and U.S. HRW wheat prices were above competitors prices. At current price levels, HRW is competitive on the world market and export sales have increased from about 30 percent below 2017/18 marketing year export sales to about 9 percent below.

HRW wheat crop conditions are improving. However, relatively low prices may result in a higher percentage of abandoned acres. Some early planted wheat has excess rye, cheat, and other non-wheat plants that will result in excess foreign material. These acres may be grazed-out, bailed for hay, or turned under as green manure and the land planted to a summer crop.

Russian and Ukrainian export sales and shipments indicate that the Black Sea area has a limited amount of exportable wheat to sell. If export shipments continue at the present rate, both Russia and Ukraine will have shipped nearly all this year's exports by the end of April. The caveat is that Russia continues to find an unexpected supply of wheat.

Prices indicate that they have bottomed out for a while. The harvest price will depend on export demand and wheat quality.

Risk Management Strategies

Wheat may be forward contracted for $4.32 (-10 cent basis) in northern Oklahoma and $4.22 (-20 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 10 cent higher. This may be a sign to hold off forward contracting wheat.
March 8, 2019

Market Analysis

Wheat prices continue to slide with CBT wheat maintaining a 10 to 11 cent premium to KC wheat. While the KC July (harvest) wheat contract price was declining about 85 cents, the Oklahoma wheat basis increased 15 cents for a net cash price loss of 70 cents. Note that on March 8, 2018, the KC July wheat contract price was $5.50 and the harvest forward contract basis was a minus 40 cents (up from -50 cents on March 7). The March 8, 2019 KC July wheat contract price was $4.42.

An 85-cent decline in the KC July wheat contract reflects continued Black Sea export sales, anticipated lower U.S. export sales than is projected by the USDA, aggressive selling by the managed funds, and a relatively high U.S. dollar value relative to competing wheat exporting countries currencies. Another market factor is trade negotiations that may be weighing heavy on the market.

The relatively high basis (-10 cents compared to -40 cents last year) reflects strong domestic demand. The market is signaling that it wants to buy wheat at harvest. A 32 cent spread, KC Dec over KC July, provides 6 cents per month carry for elevators to own and store wheat. It also implies that flour mills will need new crop wheat. If 2019 harvested wheat is below 60 pound test weight and/or 12.5 percent protein, this relatively strong basis is expected to decline. Some analysts expect the KC July wheat price to be higher. This too will depend on quality.

The March WASDE lowered all wheat exports 35 million bushels (mb). Hard red winter (HRW) wheat exports were unchanged. Hard Red Spring exports were lowered 25 million bushels. All wheat ending stocks were increased 45 mb. HRW wheat ending stocks were essentially unchanged (+1 mb). The report is bearish for wheat and corn. Neutral for beans.

Risk Management Strategies

Wheat may be forward contracted for $4.32 (-10 cent basis) in northern Oklahoma and $4.22 (-20 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 10 cents higher. This may be a sign to hold off forward contracting wheat.
February 22, 2019

Market Analysis

During the last three weeks, wheat prices declined 62 cents and gained back 7 cents. The price decline may be the result of lower export demand than expected. In the February 8 WASDE, the USDA projected hard red winter (HRW) exports to be 320 million bushels (mb) compared to 371 mb last year. Another factor is that Egypt bought U.S. soft red winter (SRW) wheat rather than U.S. HRW wheat.

The USDA released 2019/20 wheat supply and demand estimates. Wheat production (2019) was projected to be 1.902 billion bushels (bb) compared to 1.884 bb in 2018. (My HRW 2019 production estimate is 684 mb compared to 662 last year). 2019/20 wheat marketing year ending stocks were projected to be 944 mb compared to 1.01 bb from 2018/19. The average annual price for the 2018/19 marketing year is projected to be $5.15. The 2019/20 average annual price is projected to be $5.20.

The USDA projections imply that 2019/20 wheat marketing year prices will be about the same as prices during the 2018/19 wheat marketing year. The caveat is quality. If milling quality is relatively low, wheat prices will be significantly lower than last year. Prices may hold up during the June/July time period, but when the foreign wheat crop (Black Sea area) hits the export market in August and September, the U.S. wheat price will change. The direction will depend on foreign wheat quality and quantity.

2019/20 world wheat production may be slightly higher than 2018/19 wheat production. Higher production is projected in Russia, Australia and the EU. With slightly higher wheat use, world wheat ending stocks may not change much.

Risk Management Strategies

Wheat may be forward contracted for $4.60 (-15 cent basis) in northern Oklahoma and $4.40 (-35 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 20 cents higher. This may be a sign to hold off forward contracting wheat.
February 20, 2019

Market Analysis

Since February 6, Oklahoma cash old crop wheat prices have declined 35 cents and new crop (forward contract) wheat prices have declined 24 cents. The world wheat market (export prices) appear to be driving Oklahoma wheat prices.

On February 14, Algeria bought milling quality wheat for $247/tonne ((metric ton - 2,204.6 pounds) C&F (cost and freight destination)). This is $6.72 per bushel. On January 9, Algeria bought milling wheat for $262/tonne C&F ($7.13/bu.) This is a decline of 41 cents. Egyptian wheat purchase prices indicate that were relatively flat from early January into early February. This implies that world wheat prices declined about 40 cents per bushel during the last two weeks.

Since February 6, KC March Wheat contract prices have declined from $5.09 to $4.74 (at this writing), a decline of 35 cents. The KC July wheat contract price declined 24 cents over the same period. (It should be noted that the old crop (KC March) basis was steady at a minus 14 cents. The new crop (KC July contract) basis increased five cents (-30 to -25 cents).

Since February 6, the price spread between the CBT wheat contract (soft red winter wheat) and the KC wheat contract (hard red winter wheat) increased from 20 cents (SRW over HRW) to 29 cents (SRW over HRW). The may be because Egypt bought U.S SRW wheat rather than U.S. HRW wheat. Algeria may have bought SRW wheat rather than HRW wheat. Demand for SRW may be because the Black Sea exporters have filled the export market with relatively high protein wheat. SRW wheat may be needed to lower the protein flours.
February 15, 2019

Risk Management Strategies

Wheat may be forward contracted for $4.68 (-25 cent basis) in northern Oklahoma and $4.58 (-35 cent basis) in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 20 cents higher. This may be a sign to hold off forward contracting wheat.
February 8, 2019

Market Analysis

There were few surprises in the WASDE relative to wheat. Total U.S. wheat ending stocks were increased from 974 million bushels (mb) to 1.01 billion bushels (bb). The increase in ending stocks came from lower hard red winter (HRW) and hard red spring ((HRS) domestic use, not from reduced exports. This could be good news because it implies that the USDA expects HRW and HRS wheat export demand to increase. The bad news is that HRS wheat ending stocks are projected to be higher than last year which has the potential to reduce the demand for HRW wheat during harvest.

World wheat ending stocks were marginally lower with lower production reported for Argentina. Australia's production was unchanged and Russia's increased. World wheat imports were slightly higher. Overall, the world situation was as expected.

U.S. winter wheat seeded acres were estimated to be 4 percent less than last year with HRW wheat acres down 3 percent and SRW acres down 7 percent. Oklahoma seeded acres were estimated to be 4.2 million (down 5%). Kansas planted acres (7.2 million) were estimated to be down 6 percent. Kansas' 7.2 million seeded acres (ma) is important because Kansas averages about 38 bushels per acre compared to Oklahoma and Texas' 30 bushels per acre.

The WASDE and Seeded Acres reports aren't expected to have much impact on prices. This leaves export demand and weather as the major price movers. We'll have to wait and see what happens.

Risk Management Strategies

Wheat may be forward contracted for $4.80 in northern Oklahoma and $4.70 in southern Oklahoma. The forward contract basis are a minus 30 cents in northern Oklahoma and a minus 40 cents in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 20 cents higher. This may be a sign to hold off forward contracting wheat.
February 4, 2019

Market Analysis

I just read the October 25, 2018 "Market Analysis" and it's mostly applicable today. The nearby KC wheat contract is near $5, the value of the U.S. dollar is relatively high, Black Sea wheat exporters (Russia, Ukraine, and Kazakhstan) are dominating the wheat export market and U.S. hard red winter (HRW) wheat exports are below expectations. Prices won't increase until HRW exports increase and HRW exports won't increase until the Black Sea exporters run out of exportable wheat. That may be happening or close to happening.

Russia has, for all practical purposes, been the sole supplier of wheat for Egypt. Egypt imports 7 percent of the world's wheat imports and is the number one importer. Russia also controls the North African market because it supplies a high quality milling wheat (12.5 percent protein), has relatively low production costs, and has a relatively large ocean freight cost advantage compared to hard wheat competitors. Egypt's most recent wheat purchases have been from Romania and France.

Reports also indicate that Russia and Ukraine have exported or sold for export most of their available wheat. This could open exports for Argentina, Australia, Canada, and the U.S. Argentina and Canada's 2018/19 wheat production is available to compete with U.S. wheat. Australia's wheat production is projected to be below average for the second year in a row.

One problem is that India is projected to harvest a record wheat crop starting in March and that some of the wheat will be exported. Pakistan may also have exportable wheat.

Risk Management Strategies

Wheat may be forward contracted for $4.90 in northern Oklahoma and $4.80 in southern Oklahoma. The forward contract basis are a minus 35 cents in northern Oklahoma and a minus 45 cents in southern Oklahoma. If world hard wheat exportable stocks are tight during the U.S. HRW wheat harvest and the HRW harvested wheat is 12.5 percent protein with 60 pound test weight, the basis may be 30 cents higher. This may be a sign to hold off forward contracting wheat.

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