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Wheat By Grant Robison, David Mcintosh, and Griffin Horn-Smith
What is unique about the commodity of Wheat Most wheat is produced and consumed in the same country There is around 22 billion bushels produced world wide and only four billion bushels is exported
2007 -2008 Amount of Bushels produced In Millions of Bushels 22, 258 World Wide 4, 475 3, 857 3, 223 2, 751 2, 113 Eastern Europe China Former Soviet Union India U. S. A.
Buying puts to protect futures price Info provided by Northwest Grain Growers • • July 2008 price $6. 86 July $5. 80 put costs. 29 protects $5. 51 Chicago futures July $6. 00 put costs. 35 protects $5. 65 Chicago futures July $6. 20 put costs. 42 protects $5. 78 Chicago futures • • December 2008 $7. 03 Dec. $5. 80 put costs. 40 $5. 40 Chicago futures Dec. $6. 00 put costs. 48 $5. 52 Chicago futures Dec. $6. 20 put costs. 56 $5. 64 Chicago futures
Reasons to buy a put Dave Gordon Northwest Grain Growers Director 1. The put will protect a minimum price on the Chicago futures market 2. If the price increases you will be able to capture the increased cash market 3. Until you have a better idea of yield, the put will allow you to protect bushels above the amount you fell comfortable to sell.
2007 - Market Comments 1. 2. 3. 4. 5. 6. 7. 8. 2006/2007 Australian crop 350 million bushels vs. 800 million bu. Average 2007 U. s. HRW crop reduced 400 -500 million bu. due to rain damage 2007 European Union crop reduced 150 -300 million bu. due to rain damage. Drought in North Africa reduced the cereal grain crop 2007 Canadian crop reduced by 150 -200 million bushels due to drought India and pakistan will both import wheat in 2007/2008 Australian crop production will probably come in under 500 million bu. U. s. Wheat exports are at 83% of the USDA projected total
2007 - Market Comments 9. U. S. White wheat production was lowered 30 million bushels on the last monthly supply and demand report due to switching of SWW acres to HRW last fall. 10. Russia has imposed a 10% export tax on grain to hold down internal prices 11. Weakness in the U. S. dollar has made U. S. exports more competitive
2008 Pros 1. 2. 3. 4. U. S. and World Ending Stocks will be the lowest on record vs. usage. There is a winter and spring for a chance of N. Hemisphere weather problems S. Hemisphere will not have any additional wheat for sale until January, 2009 Corn demand for ethanol is projected to rise from 3. 2 billion in 2007 to over 4 billion in 2008
2008 Cons 1. Some ethanol plants are suspending construction until margins improve (corn price down and or ethanol prices up) 2. High ocean freight costs are making U. S. wheat less competitive. 3. Eastern Europe temporarily suspended the 10% set aside which could bring back into production 4 -7 million acres of wheat (500 million bushels)
Futures Market You don’t need a college degree to deal with the market just a basic understanding of the product such as Soft White Wheat or Soft Red Wheat The Futures Market is safe to use price protection by selling futures in the differed years.
Side notes • If Wheat were to go extinct or never been here before the alternative would have to be corn or rice • Wheat can be used for in ethanol but corn is better • As the worlds economy gets better Asians are changing from rice to wheat