Daily Ag Direction 5/7/24
Good Morning!
We have had a lot of questions about the recent market rally in wheat and if producers should be locking in bushels at these prices. With some choppy up and down trade recently, we’ll take a look at price movement to gauge what the market has given back in value.
Examining the 2-year July ’24 KC Wheat contract chart, producers observe that this market spent a considerable amount of time above $7.00/bu. In fact, the 50% retracement level, given that we use July 25, 2023 as the day of the collapse, sits at $7.08/bu. Producers should contemplate what caused prices to be that high and try to understand if that can happen again. Those high prices were largely a relic of the Ukraine War and other supply concerns that are unlikely to be duplicated in the same fashion, but could individually continue to move markets. So then, what is the new normal producers should strive for?
Production inputs continue to be the focus of our marketing goals as our RMA team advises farmers on marketing decisions. It is as important as ever to understand the cost of your growing crops, in order to effectively market them prior to harvest. Acting without this information may not be foolish in every scenario, but it is a vital piece of the risk management puzzle that should not be ignored. When creating budgets, I generally find that producers spend between $200 and $250/acre on wheat production. Using the low-end production cost as to not sound too pessimistic, and a yield of 50bu./acre, breakeven occurs at $4.00/bu. That value remains very obtainable in this market scenario. But what if things are not that optimistic? Using a $250bu./acre cost of production and a yield of 30bu./acre, the breakeven price is $8.33/acre. If that scenario describes your farming operation, then in the last two years (730 days) you have had roughly 80 days to secure that price. All of them occurred prior to July 31, 2023. That is to say that in the past two years the price has been above or near $8.33/bu. about 11% of the time. Not to mention the fact that we have not subtracted basis from these figures.
Producers often ask me, “What is wrong with selling what I already have?”, when referring to marketing preharvest. I tell them there is nothing wrong with that strategy, as long as the market is trading higher than your breakeven after harvest.
We are excited to help you with your marketing strategy at anytime and keep budgets for all of the major commodities that producers are likely to grow. Give us a call if you would like to utilize this exercise for your particular operation.
July 24 KC Wheat -10 @ $6.66
July 25 KC Wheat -6.5 @ $7.08
July Corn 0 @ $4.69
Dec Corn 0 @ $4.89
July Beans 0 @ $12.50
Nov Beans +3.5 @ $12.23
Aug Feeders +2.000 @ $254.83
June Live +1.325 @ $175.750
Please reach out to your CEA Risk Management Advisor if you have any questions. Have a great day!