Posted by: usset001 | September 11, 2013

2013 Post Harvest Marketing Plan for HRS Wheat

wheatfieldEach year around harvest time, I check the marketing landscape and write a post harvest marketing plan. The spring wheat harvest is nearly over, and two weeks ago I wrote a post harvest marketing plan for HRS wheat. You can find it here.

Your marketing choices after harvest are limited; you can sell grain at harvest, store grain to sell it later, or store grain and sell the carry in the market. The storage alternatives are not very appealing if you are paying 3-5 cents/month in storage costs – they are more appealing if you store on-farm. Options (puts and calls) open up a whole new world of pricing alternatives, but they are basically enhancements to the three basic strategies.

Early (pre-harvest) wheat sales set the table for my post harvest strategy, and I am very lucky to have made some. Spring wheat futures prices topped out in November/December of 2012 and it has been, in general, a long, slow slide lower ever since then. Dec’13 MGEX wheat futures are currently hovering a little above $7/bu., a full $2.50/bu. and 25% less than last December. From a marketing perspective, when harvest arrived I was already well ahead of the game – I could have sold wheat at harvest and taken all the chips off the table. But there are still chips left for taking, in a large carrying charge in the market.

The wheat futures markets are sporting hefty carrying charges – in the case of spring wheat, the carrying charges extend all the way out to the Jul’14 contract (this is not very common due to the earlier winter wheat harvest). I decided to sell the carry on much of the wheat, i.e., I stored the grain and sold the carry with a sale of July wheat futures. Jul’14 futures were trading at a 35 cent premium to the Sep’13 contract in late August. Selling the carry is an opportunity to put that 35 cents in my pocket, plus another 70-90 cents in basis gain over the next 6-9 months. The basis at harvest was 82 cents under the Jul’14 contract – I expect the basis to narrow to option price July by next spring. Carrying charges of 35 cents and a basis opportunity of 80 cents are chips I cannot afford to leave on the table.

FYI, those chips are still there for the taking. There is a 27 cent carry from the Dec’13 contract to the Jul’14.

 

 


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