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Wheat fields in May overlooking the Snake River towards Lower Granite Dam.
Photo by Kim McCabe

WestBred

MARKETING

A wild ride through the markets

April 2020
By Trista Crossley


Kevin Duling’s 2020 Agricultural Marketing and Management (AMMO) session take-home message for growers was simple: prediction in the markets isn’t possible, so why try? Instead, he recommended talking to buyers and developing flexible tools to be able to move when/if information becomes available.

Duling is co-founder and manager of KD Investors, a consulting firm dealing with the marketing of grain. While KD Investors is based in Oregon, Duling works with clients throughout the U.S., Canada and Australia.

Duling begin his presentation by inventorying world wheat stocks. Leaving China out of the picture, he said, things look tight. Besides the U.S., the other major wheat exporters—Canada, Australia, Argentina, EU, Black Sea Region—are all likely to run out of wheat to export in June. The U.S. (at the time of his presentation) is projected to have approximately 25.6 million metric tons left in June.

“That just leaves us. Out of all the six exporters, we are the only one left with any stocks to export,” he said, adding that when broken down by variety, Dark Northern Spring and hard red winter will be most plentiful, while white wheat will be fairly snug and soft red wheat will be almost nonexistent.

Some of the bearish forces impacting the market are the strength of the dollar; the possibility that India may become a wheat exporter; fear headlines; and the coronavirus. Bullish forces include the China Phase One trade deal and the cash basis in wheat/corn.

“The dollar is one of biggest headwinds we have. This means more to us than all the supply and demand stuff we like to talk about,” Duling said, showing a dollar index chart. “Technically it looks bearish, but in the meantime, we have a record strong dollar against a lot of our competing currencies, and that’s killing us.”

For growers who need to get rid of old crop, Duling said there is really only two potential windows left—one in March when importers book final 2019 crop shipments and one in late spring as Portland fills boats for final 2019 shipments. He believes that if China moves forward with buying commodities as outlined in the Phase One deal, they will be buying new crop.

Looking forward to new crop implications, Duling pointed out that:

• Russian wheat acreage is up slightly;

• EU acreage is down;

• Argentina acreage will drop;

• Australia is due for a normal-to-large crop;

• U.S. acreage is down in hard red winter areas; and

• India is on track to become an exporter of 10 to 15 million metric tons.

For positioning on new crop, Duling recommended that growers consider hedge-to-arrive (HTA) contracts, especially if China becomes a buyer of soft white wheat; work with your buyers to understand what tools they have available; and look for a sales window between harvest and late January. However, growers should keep an eye on the Russian wheat crop. Their wheat forecast is for a record 85 million metric tons, but they are sitting at 30 percent of their normal soil moisture. Wheat prices will depend on that Russian crop.

“Unless Russia has a drought, there won’t be a good sales window from August to January,” Duling said. “Now, they are dry. They are going to be living on the edge of rain, and if they get it, we are going lower. If they don’t, I think we can go $3 up based on all those exporters and what stocks they have left. There’s no room for error.”

Duling’s final advice to growers included:

• Use HTAs, cash sales and put options to establish a long-term, multicrop year, flexible floor when the market presents a profitable outcome;

• Learn your buyer’s tools so when the time comes, you know what you can do;

• Set profit targets so you know when to act; and

• Know the computer/algorithm trade is not going away.

More information on KD Investors can be found at kdinvestors.com.

The 2020 Wheat College is currently scheduled for June 16 at the Wheat Land Community Fairgrounds in Ritzville. “Real Agriculture” agronomist and podcast host Peter Johnson, also known as Wheat Pete, is scheduled to talk about maximizing yields. Corteva Agriscience will be discussing nitrogen stabilization and WSU Extension will present on topics yet to be determined. Watch wawg.org/ammo-workshops/ for information.