Posted by: usset001 | June 12, 2009

Spring Wheat: 2010 pre-harvest marketing plan

wheatfieldEarlier this week I posted all new pre-harvest marketing plans for 2010 corn and 2010 soybeans. Clearly I’m on a roll, so I would be remiss in excluding my ideas for 2010 pre-harvest marketing of spring wheat.

I am trying to make the argument that my interest in starting the process of marketing my 2010 crop is not driven by price levels. Rather, I see very attractive margins based on current quotes and implied production costs for 2010. As good as those implied margins are in corn and soybeans, they are even better in the world of spring wheat.

FINBIN is a great resource for financial data on actual farms but today I point you to the 2008 North Central & Northwestern Farm Business Management Annual Report. On page 43 I learn that, based on the actual results for 107 farms, the average cost of producing spring wheat on cash rented ground in 2008 was $4.94 per bushel. This figure takes into account direct government payments of $14 per acre and includes a labor and management charge of $23 per acre. Based on lower fertilizer costs, I would make the argument that spring wheat production cost will be no higher in 2010.

So I am reasonably confident of my ability to produce wheat at a cost of about $5 per bushel in 2010. At what price can I sell my 2010 production? The Sep’10 spring wheat contract is currently trading at $7.50 per bushel, or a cash price of $7.10-7.20 per bushel at harvest in 2010. That’s an implied margin of over $2 per bushel! My 2010 marketing plan is published and I’m in.

The 2010 September spring wheat contract began trading about 6 months ago. The Minneapolis Grain Exchange closed its trading pit in mid-December, 2008. Did this contract ever trade in the pit? This is trivia. But it is important to note that, unlike corn and soybeans, there are no quotes for spring wheat futures prices for 2011 or 2012.

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