Optimistic News Support Wheat Prices

August 3, 2011 10:03 AM

By Kim Anderson,Oklahoma State University

Kansas City Board of Trade (KCBT) hard red winter wheat (HRW) prices are wallowing is a sideways pattern between $7.50 and $8. If the September contract price closes above $8 two consecutive days, an uptrend is expected to be established. In this case, the price target would be $8.50. If the September contract price closes below $7.50 two consecutive days, the target will be $7. It takes two consecutive closes below $7 to establish a downtrend.
The weekly market news includes the U.S. spring wheat tour results (lower yields than expected), the potential for lower yields and quality with French and German wheat, higher yields and relatively good milling quality Russian and Ukraine wheat, and the potential for lower hard spring wheat production in Canada. News headlines include "Russian exports hit record 72 million bushels in July," "Ukraine exports increase dramatically," and "International Grains Council raises forecasts for world wheat production."
Other news includes above-average temperatures during corn pollination (lower production). The news is already factored into current HRW wheat prices. New information that deviates from current expectations will determine if the KCBT Sept wheat contract price breaks out the top or the bottom of the current sideways pattern.
Anticipation of supply and demand changes that will be released in the August 11, USDA WASDE (World Agriculture Supply and Demand Estimates) are already impacting corn and wheat prices. The market is anticipating that the USDA will lower corn yields and spring wheat production. The U.S. wheat price trend is normally set in late August and early September.
Right now it appears that the odds are for slightly higher wheat prices. The joker in the deck is "DROUGHT." If it does not rain and temperatures remain above average in the HRW area, KCBT wheat contract prices may increase into the $8 range.

Risk Management Strategy

August has never been the "best" month to sell wheat. The June/July or the September/October/November wheat price has always been higher than the average August price. This does not mean that the prices in Sept through Dec will be higher than the August prices. It just implies that wheat normally should be sold in June or during the Sept through Dec time period.
Between now and December 1, wheat prices may be anywhere between $6.50 and $9.00. The price trend is now sideways. The prudent management practice is to follow an established plan. If no wheat has been sold, consider staggering sales in lots of one-fourths or one-thirds between September 1 and January 1, 2012.
Watch Anderson's weekly market update with SUNUP TV:


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