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Wheat: A Strong World Harvest


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Wheat: A Strong World Harvest

CURRENT STATE:

WHEAT:A strong world harvest continues to keep Wheat subdued. The Russian harvest is just one example of the increased supply hitting the market. Russia along with many European countries are exporting at an alarming rate adding to the glut of an already swelling supply chain. Here at home, with much needed rains in Montana, Wyoming, and part of the Dakotas, I’m raising estimated yields for next year’s crop by a factor of 1.10 i.e. US yields. Yes, that’s correct by a factor of 1.10. Simple economics 101 tells us, if this is the case, that next year’s supply of Wheat will be overwhelming. Where in the world will we store the stuff? However, for the moment let’s focus on the next couple of months given the markets tend to view things from a shorter term perspective. I see Wheat prices holding steady and/or drifting slightly to up and downside with not particular direction. I still have a buy on Wheat, albeit a weak buy. And, as mentioned last week, given the advancements in technology allowing for a continuous annual improvement in yields, prices over the next few years will continue to decay to a new trading level. If I had to guess it would around the mid 3.50ish level. Moreover, not helping the Wheat prices will be the grocery price wars breaking out between Amazon, Walmart, and Kroger. This will only benefit the consumer as they take advantage of lower food prices driven by both the advancements in technology and the aforementioned price wars. In any event, even though wheat prices are still in dire straits, I’ve still long the commodity on a day-to-day basis but watch this space!

Where one algorithm points up and the other points down, I’ll stay with the short-term bounce and stay long. This is a day-to-day call, however so watch this space. In short, there is still WAY too much of this commodity just hanging about, and this always spells Sell.

MORNING CALL and Recommendation:

We are Long @KW given both Algorithms point to the upside.

POSITION:

Long: @KW (Hard Red Winter Wheat)

Price: 426.25 (8/29/2017) (continuous contract; contract adjusted)

Current Price: 440.25 (9/18/2017, 8am CST)

PROFIT/LOSS:

+250.00 (as of January 2nd, 2017; per 1 contract)

FULL DISCLOSURE: Short KW

For farmers/producers looking to put on a hedge please give me a call for a no obligation free quote. I’ll be more than willing to visit your farm and explain how a hedge works, obviously at not costs to you. Please visit our website: www.royalhighlandadvisors.comor call me at 920-319-1444. Email: phil@royalhighlandadvisors.com, phil@agriskconsultants.com, phillip.mcknight@bath.eduorphil.mcknight@alumni.ucla.edu.

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About the author


Phil McKnight has a Bachelors Degree in Accounting from the University of Arkansas (Fayetteville), a Masters in Business Administration from Northeastern University, a PostGrad Diploma in Personal Financial Planning from the University of California (Los Angles, UCLA), and a PhD in Finance from the University of Bath (England, UK). Phil graduated with distinction/summa cum laude from UCLA.

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