Posted by: usset001 | August 12, 2011

Post harvest marketing strategies for HRS wheat

Will the spring wheat basis go to strong “overs” again in the year ahead?

The high temps of early July had an impact, as much of the early harvest is 15% protein. Protein premiums have collapsed sharply in the past two weeks.

What will you do this year? Your aggressive choice is to store unpriced grain for sale later in the crop year. That worked very well a year ago, when $6 wheat at harvest made it all the way to $11/bu. in late spring. Currently the cash price of wheat in the Red River Valley is close to $8.25 – only in 2008 did we have higher prices at harvest. Now that we are on the topic, 2008 was the last time spring wheat prices took a serious turn south later in the crop year. It did NOT pay to wait for higher prices then.

If holding unpriced grain seems too risky, how about the alternative is to sell wheat at harvest? It’s a choice that minimizes storage costs and drama. Harvest basis levels of 20-40 cents under for spring wheat are as good as we’ve seen in the past five years. My problem here – I am a basis bull, and I anticipate “overs” to make a return later in the crop year.

A more conservative choice is to hedge and sell the carry. This can also work for those “too early and too cheap” sales made with futures sales or HTA contracts. You can roll the hedges forward.

The spring wheat market is showing a modest and positive carrying charge from Sep’11 to the Mar’12 contract, about 10 cents per bushel. Ten cents won’t pay for much storage. However, in my mind this is a basis play and rolling your hedges or HTA contracts to the March is a way of buying time for the spring wheat basis to increase from current levels of 40-50 cents under the March to “overs” sometime in the new year.

This strategy has five benefits

(1) hedge against lower wheat prices (protect that $8 wheat!)

(2) keep the 10 cent carry to March (that’s not a large carry)

(3) basis improvement (are you a basis bull like me?)

(4) if the carry to May or July increases, roll the hedge forward to capture even more carry and basis improvement

(5) defer income and taxes into the 2012 calendar year

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