Volatility Offers New Crop Spring Wheat Pricing Opportunities

Minneapolis Grain Exchange (MGEX) spring wheat futures set a single month volume record during February 2004 and an all-time high open interest of 39,816 contracts, as seasonal contract high prices were established and significant spring wheat sales to China by private exporters for marketing years 2003-04 and 2004-05 were announced.

According to Charles Soule, MGEX floor broker for Country Hedging Inc. headquartered in Inver Grove Heights, Minn., now is the time to consider pricing a portion of new crop spring wheat. 

“September and December futures prices are running well above the 5- and 10-year averages for this time of the year,” he says.  “My recommendation is that producers short hedge approximately 20% of their new crop spring wheat against the September contract and roll the hedge forward to December, should that contract reach a 7-8 cent premium to the September.”

The current December 2004 spring wheat futures premium versus the September contract is between 3 to 4 cents per bushel. Soule suggests out-of-the money puts as an alternative to selling futures for new crop spring wheat, and buying out-of-the-money July call options against old crop spring wheat that has already been sold.

“Given the current low carryout numbers in spring wheat and decreased spring wheat planting expectations, any significant new sales to China could translate to exceptional price volatility in the deferred futures month,” Soule says.

Consult with a grain marketing professional for more advice on using the Minneapolis Grain Exchange for pricing new-crop wheat. Go to the web site www.mgex.com for spring wheat futures quotes, charts, and historical data. 

DISCLAIMER:  The information contained in this article is taken from sources, which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is sent to you for information purposes only.  There is a risk of loss when trading commodity futures and options.  Country Hedging, Inc. bases its recommendations solely on the judgment of Country Hedging, Inc. personnel.