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Market Plus: May 13, 2005

posted on May 13, 2005

Market Plus: May 13, 2005

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. Glad you've joined us. I'm Mark Pearson. With me this week one of our senior market analysts, Virgil Robinson. And Virgil, we've been talking about soybeans, soybeans, soybeans. You addressed it on the show I thought fully. We didn't talk as much about the wheat market which can also be exciting. We kind of think the wheat market is basically done at this stage of the game. We're six to eight weeks away from harvest in the key portions of the wheat belt but you point out this thing can move a lot production wise between now and when those combines move through.

Robinson: Yeah, the May forecast and the final tally, Mark, in each of the last several years has varied as much as 100 million bushel pretty regularly both up and/or down. So, clearly we have that kind of an environment as we visit today. People would argue weather remains a driving factor and it does. Mark, I can tell you it's kind of an interesting -- that report was interesting last week in that they are projecting a pretty significant increase, year over year increase in the U.S. of wheat ending stocks about 25%. While in the same breath globally, global wheat stocks are actually forecast to decline year over year, modestly but nonetheless decline. So, there are a lot of messages, I think, within the confines of that theme. One would be if U.S. inventories grow to that proportion then carrying charges in the futures market and the cash market will also grow or widen pretty significantly. So, for those who own their own bin space and have the opportunity, Mark, to take advantage of those carrying charges there will be, in my opinion, some merchandising opportunities many of which would evolve around the hedge to arrive concept or the no basis established concept where, for example, as we move into the hard red winter wheat harvest should those carrying charges widen the producer can recognize that, make himself a hedge to arrive position with the intent of rolling it forward within the same crop year capturing that carry and then awaiting the basis to narrow as it traditionally and most always does as we work through the inventory of wheat in the crop year and capture as much as another 30 or 40 cents a bushel and clearly pay for that bin space and improve his or her return.

Robinson: That is an opportunity they don't want to miss.

Pearson: That's critical and again we're not talking anything too incredibly hard here. The hedge to arrive this is a very safe situation.

Robinson: And, again, the specifics can be explained by their local elevator or local vendor, or Mark, there are Web sites including Kansas State University's that go through illustration to the extent of a white paper or two that will document how and the mechanics of employing a marketing strategy of that nature.

Pearson: Absolutely, check it out folks, that is our friends in wheat country. We want them to maximize their profitability as best they can.

Robinson: Mark, you mentioned, you know, the price range $2.55 to $3.05.

Pearson: Right.

Robinson: I'd certainly prefer to see our listeners capture that $3.05 in contrast to that $2.55 which is likely to occur at or shortly after the harvest. If they possess bin space they can avoid that and reap the benefits, I think, of a significantly better market with some very simply marketing tactics.

Pearson: Absolutely, some great ideas as usual. Virgil Robinson, thanks so much. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news soybeans