Depending on the crops you raise, you are currently at different stages of the growing and harvesting season. There is an abundance of work to do each and every day, and that doesn’t include all of the fires you put out (not literally). You are continually making adjustments in your daily and weekly plan. Equipment breaks down or needs to be adjusted, ditches need to be repaired, and let’s not forget pivots that quit working or tip over. Needless to say, you are always adjusting your original plan for getting the work done.
Making adjustments to the original plan isn’t unique to your operation or your industry. We all do it in spite of our best-laid plans. I think it would be safe to say that is just how life is. So I am very safe in saying the same holds true when it comes to selling the commodities we raise. You would be surprised at the number of soft white bushels that didn’t contract when the market in southeast Idaho was $9 per bushel (give or take a little).
Remember last month when we visited about studying the market just to see just what it is that is making the market move? Well, that is still as true this month as last. I continually hear statements like, “The market should be a lot higher than it currently is.” Yes, I will agree with you that it should be, but it isn’t, and the market is always right. Just in case you didn’t hear my voice get a little louder and forceful, I will repeat that again, the market is always right!
All we can do any crop year is simply the best we can. We may need the market to be at $9, but it may not make it there, so we still need to study the market. Determine just what influences are supporting or pressuring the market. This could very well take a fair amount of time or just a few minutes. The key will be consistency. If you only have a few minutes during the day, then be consistent and study every day.
There is no need to try and be an expert on the markets (after all, the experts may not know a lot more than you do). Just pick out a few key indicators and watch those. In the fundamental indicators maybe you keep an eye on the stocks-to-use ratio. When watching the technical side of the market, let’s say you watch the relative strength index (RSI). Both of these could help you with the movements in the futures markets. Then, last but not least, will be the local supply/demand indicators by watching your local basis.
The stocks-to-use ratio for all wheat in the 2022-23 crop year was 32%. The reports from the USDA are projecting the ratio for the 2023-24 crop year to remain at 32%. We know the wheat production is off this year in some classes of wheat, and what this is telling us is that the demand (exports) will also be lower. It is good to remember that just because a report may have reduced all wheat stocks it won’t necessarily move the market higher. What we need to look at is if the reduced stocks are more or less than what the trade was projecting.
Let’s look at an example. The USDA issues a report reducing the amount of wheat stocks by 50 million bushels. On the surface, the market should find support and trade higher. However, the trade was projecting stocks to be reduced by 80 million bushels. We now have 30 million more bushels than the trade projected so the futures could very well trade steady to lower at least for a few days. Now we combine this with the relative strength index. This is a very simple technical indicator to follow. The RSI has two lines on the chart, one at 70 and one at 30. When the RSI line reaches 70, this is an indication the market has reached a point where we could see some resistance and the futures trend lower. The opposite is true when the line moves toward 30, when we could see support and we trend back higher.
We will visit in more detail in the months ahead. For now, if you would like to visit, simply call me at (801) 458-4750.
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