With prices testing lows in winter wheat Tuesday before reversing, making sales may be the last thing on growers’ minds. But with little weather threat emerging so far, get ready to take whatever the market gives.
In winter wheat, that’s carry. Both futures markets have carries to May 2018 of more than six cents a month for new crop. That should at least provide a return to storage for those with space available and year-round markets. Some of the proceeds could also be used for a call option strategy down the road to provide some upside protection.
Another alternative would be selling a SRW December $5 call to put for an at-the-money July put. That caps the selling price but at least provides some downside into harvest.
Crop conditions for winter wheat continue to show little overall threat. Projected yields range from 46 to 49 bpa depending on the model used, and vegetation maps are also improving. If rains fall as expected over the next two weeks it will become harder and harder to bet on a weather rally. That April frost also hasn’t materialized yet.
Spring wheat growers have a little more leeway, but should consider selling into the rally. While it’s wet on the northern Plains, forecasts are hinting at a dry window. And other producers of high protein wheat so far appear in pretty good shape, which could begin to blunt premiums.
The trouble with wheat remains excess supply, an issue that won’t be healed quickly. France is about the only dry place now, and the crop there is in decent shape with wetter forecasts looming. The Black Sea is getting rain this week which could go a long ways toward making the crop there.
Even Australia appears to be seeing some improvement. Growers there begin seeding soon, amid talk of an El Nino with a 50-50 chance of arriving. That’s the best hope for a post-harvest rally, and it remains a dice roll.
I’ve recommended having 50% of 2017 production potential covered with a variety of contracts at prices well above where the market is at now. Spring wheat offers the best prices for flat sales; in winter wheat, it’s carry or nothing.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.