Posted by: usset001 | September 2, 2009

2009 Post Harvest Marketing Plan for Spring Wheat

grainbinsPre-harvest activities set the table for a post harvest plan and last year at this time, I lamented a series of pre-harvest sales that were too early and too cheap. My 2008 pre-harvest pricing committments averaged a profitable $5.70 in the September contract. Unfortunately, in late August last year, September spring wheat futures were trading nearly $3 higher.

Oh, what a difference one year makes. This year my pre-harvest sales were NOT too early and certainly not cheap – I had 75% of my crop priced at an average of $8.71, or nearly $3.50 higher than September futures at harvest. I like to remind producers of the motivation behind my pre-harvest pricing activities. I do NOT make early sales (last year, this year, any year) because my “outlook” calls for lower prices by harvest. I do NOT make early sales because of my expectations concerning the value of the dollar, the size of the Canadian wheat crop or my general expectations concerning the economy, etc. I do NOT make early sales because of a recommendation from a market advisor or broker. I make sales because I understand my own operation and my own cost of production, and these are sale prices that work for me.

Looking ahead to post harvest opportunities, I see a very large carry in the Minneapolis wheat market. By my calculation, the Sep/Mar spread of 37 cents (Sep’09 @ $5.21 1/2 and Mar’10 @ $5.58 1/2)  is 315% of interest costs to store $4.85 wheat for 6 months (based on 4.5% interest). That is the largest carrying charge in spring wheat I have seen at harvest in the past 20 years. I like to sell large carrying charges. Placing grain in storage at harvest and selling (or rolling to) the March contract allows me to, (1) hedge against lower prices, (2) capture a large, 37 cent carry from Sep’09 to Mar’’10, (3) defer income to next year and, (4) wait for a harvest basis of 74 cents under the March to strengthen. I think a spring wheat basis of 5 cents under the March is possible in the next 6 months.

My latest marketing plan should be posted by the end of today. All of my pre and post harvest marketing plans are posted on my web site.

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