TAMING THE BULLS & BEARS!

Planning for a Recovery in the Wheat Market

Betsy Jensen regularly delivers advice on grain marketing in Prairie Grains, but recently, she’s been focusing on a more eventful delivery: A new baby daughter. Betsy is on maternity leave, and her column will return soon. In the meantime, following is her response to a recent grain producer’s question that still lingers with many: With wheat dropping as far as it has, is there any hope for recovery? See her response to other marketing-related questions, and ask your own, on the Internet at  www.smallgrains.org . Click on the “Toolshed Information Network” logo, then “Betsy’s Bulls and Bears”

I think the last thing we need to be doing is giving up on wheat.  I’ve been warning farmers ever since harvest that wheat is going to be a volatile market.  Of course I was hoping the volatility would bring higher prices, but I can honestly say I’m not surprised by the drop in the price of wheat.  You can’t rally $2 from fall to spring and not expect a big setback at some point. It’s also unrealistic to expect that wheat prices would rally $2, and then trade with a $.20 trading range all winter. 

I will once again emphasize how I believe options are the appropriate tool to use this year, either call or put options.  Since basis has weakened for short term delivery, you are better off not selling cash grain today.  I know my local price has a 25 cent basis carry from now until April. That means basis for April is $.25 higher than the basis today. That has to be telling me something about storing grain. They don’t want the grain today, but they are looking for spring delivery.

You can always lock in the cash price for spring delivery and re-own with call options.  At least then your price risk is limited to the price of the option, and not the potential $1 slide we could see if demand remains weak and the 2003 crop looks good.

With stocks as tight as they are, wheat is bound to trade much higher and much lower, depending on demand. If we get good demand for U.S., wheat, we’ll rally again, but I can’t forecast demand. There are just too many maybes in the wheat market right now and even though prices have dropped, they’re still much better than I ever anticipated receiving, compared to prices at planting last spring. 

My bias now is toward options, which are very expensive, but will at least allow you to sleep at night. If we see another rally in wheat, don’t let it pass you by.  In one of my marketing groups, we’ve felt foolish all year because we sold some wheat last spring and then watched it rally $2. We decided we’d feel even more foolish if we sell wheat at $3.25, only to watch it rally to $5.

U.S.Winter Wheat Planting Largest in Five Years

Winter Wheat: Area Seeded, by State and U.S., 2001-2003

State	2001	2002	2003	As Pct. of 2002
Minnesota	15,000	35,000	25,000	71
Montana	1,300,000	1,450,000	1,750,000	121
North Dakota	150,000	80,000	130,000	163
South Dakota	1,300,000	1,300,000	1,500,000	115
United States	41,078,000	41,735,000	44,246,000	106
Winter wheat seeded area for 2003 is expected to total 44.2 million acres, up 6% from 2002, according to the USDA. This is the largest area since 1998. Approximate class acreage breakdowns are: hard red winter, 32.1 million; soft red winter, 8.2 million; and white winter, 3.9 million.

Jensen farms with her husband Brian near Stephen, Minn.  Her market education activities are supported in part by the Minnesota wheat checkoff, directed by the Minnesota Wheat Research and Promotion Council. If you have a question or topic related to marketing that you’d like to see addressed in Jensen’s column, call 800-242-6118, or email Jensen: bjensen@nctc.mnscu.edu.