|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
 |
|
|
|||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||
|
Wheat Fundamentals Bearish wheat fundamentals, but bullish if corn/soy yields falter While wheat market fundamentals appear bearish, the wheat price going into fall will look to hinge on what corn and soybean prices do. If poor weather late in the growing season cuts yields and prompts support in the corn and soybean markets, wheat will likely find support as well. Otherwise, the supply/demand picture for wheat is clouded by comfortable wheat stocks globally, and ample wheat in the U.S. World wheat production this year actually looks to be down slightly from last year’s high water mark, to just slightly below global use. Production is higher in the former Soviet Union and Canada is expected to have better quality wheat than last year. While global stocks are down slightly, the EU has ample wheat supplies on hand, and so does the U.S., despite the reduction in planted acres from 2004. In lieu of support from corn and beans, a U.S. stocks-to-use ratio that looks to be over 30%, and greater expected export competition, are key factors that figure to keep Minneapolis wheat futures below $3.50 this fall. Thus, recognize the bearish potential of the wheat market, and bullish opportunities when you see them. NDSU extension crops marketing specialist George Flaskerud advises to target Mpls Dec futures at $3.70-$3.90 for ’05 sales, considering sales with hedge-to-arrive (futures-fixed) contracts and scaling up sales if corn and soybean markets move higher. Limit contracts to your crop insurance guaranteed yield prior to harvest, and consider buying at-the-money put options (Mpls Dec) on the balance. Look to deliver in November when basis should improve. For low-protein or low quality wheat, evaluate what USDA loan and elevator net price might be with discounts and consider targeting next April for cash sales. Consider initiating forward sales on anticipated ’06 wheat production if Mpls Dec futures happen to climb above $3.70 or into $4.00 range on the coat tails of corn and soybean markets. Flaskerud points out that generally, selling one-third of anticipated production using a cash forward contract or HTA and one-third using put options can manage a significant amount of price risk – a floor price is established on two-thirds of anticipated production, but the price is still open to the upside on two-thirds.
Average November Price Dec. Futures CBT vs. USDA’s Nov S/U Estimate for Wheat
Ending Stocks of Wheat Relative to Total Use
World Wheat Production Down and Slightly Below Use
China, Always a wildcard price factor China Wheat Imports could Exceed Expectations if Production Falters
China Will Need to Increase Production or Import Corn
China always seems to be a wild card to the grain markets, and as the world’s biggest producer and user of grain, that’s to be expected. China’s wheat ending stocks in recent years has increased their wheat import potential. From 1990-2003, Chinese wheat imports from the U.S. ranged from 17% to 44% of their annual total wheat imports, for an average U.S. share of about 30%. China’s ending stocks for corn have also declined in the last few years, making it less likely they’ll export corn, and more likely that they’ll need to step up corn production or import it, which could provide rally opportunities for the U.S. corn market. ------------------- Get DTN at www.ndwheat.com The North Dakota Wheat Commission offers free DTN price quotes and market news on its web site, www.ndwheat.com |
|||||||||||||||||||||||||||||||||||||||||||||
