Issue 6
March 1997

Three parts to a grain marketing plan
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.


 Ed Usset, a wheat market analyst with the Mendota Company and the University of Minnesota, says there are three basic elements to a wheat marketing plan:

1) Know and control your costs

"Wheat is a commodity, and for long-term survival in a commodity market, you must be a low-cost producer," he says. Knowing where your costs (including storage) are means knowing where profit barriers lie.

2) Respect the odds

Or, know when to expect seasonal price movements. Since 1968, the average November wheat price has exceeded the average August price in 21 of 29 years, or 72% of the time. Since 1987, November and December wheat prices have exceeded the average August price in 7 of 10 years, or 70% of the time. November and December prices averaged 22 and 32 cents higher, respectively, versus August in this period.

The seasonal rise beyond December is less pronounced and concentrated in the tail end of the marketing year. Usset notes that seasonal price movements in wheat have become sharper since loan rates were decreased in 1986.

"Ask yourself what you can do to avoid wheat sales at harvest," says Usset. "Seasonal price moves strongly suggest that most sales should be completed the end of December. Wheat stored for sale beyond December should generally be held to the April/May period for best return, if any. But holdings to late spring do entail much greater price risk."

3) Know your basis

The effective use of more sophisticated marketing tools such as futures and options requires a solid knowledge of the basis, which is the relationship between your local cash price and the futures price. Familiarity with the basis will help in knowing when to sell cash wheat, forward contract for new crop or deferred sales, sell futures against wheat held in storage, sell wheat and buy futures or call options, or buy put options to guarantee a minimum price.

Your county extension educator is a good place to start for additional infor-mation.

Copyright Prairie
Grains Magazine
March 1997