Harvest time is the right time to “size-up” the opportunities in post harvest marketing. Some years I struggle with my choices. Sell at harvest? Store unpriced wheat? Sell the carry? I am not struggling with my choice this year.
Over the past 10 weeks, as drought in the Corn Belt propelled corn and soybean prices higher, wheat futures prices followed and the wheat basis collapsed to nearly record levels. Unlike the corn and soybean markets, wheat futures are showing modest but positive carrying charges. Modest carrying charges alone are not enough to warrant selling the carry, but selling the carry is also a basis play.
Looking ahead to the first half of 2013, I am very bullish on the spring wheat basis. Selling the carry with the May’13 contract gives me the opportunity to pick up as much as $1/bu. when the May basis (currently at 109 cents under at harvest) narrows to something closer to option price by next spring. The chart above shows the basis pattern in 2010/2011 – I expect a similar pattern in the year ahead.
Buying back earlier pre-harvest sales in the Sep’12 contract (and rolling forward to the May’13) won’t hurt as much as you think. A year ago I made 2012 pre-harvest sales with the Sep’12 contract trading just over $9/bu. After a turbulent summer of drought-propelled prices, the market is only trading about 25 cents higher.
It makes me want to think seriously about new crop sales for 2013 with the Sep’13 contract nearing $9.50/bu. Patience.