Issue 33
January 2001

Copyright
Prairie Grains Magazine
January 2001

Grain Market Gleanings

Cargill AgHorizons offers new hedging choices
Cargill AgHorizons has launched ProPricing, a grain-marketing contract with five professional hedging choices for marketing grain: Three hedging strategies managed by Cargill AgHorizons, and two plans managed by non-Cargill grain marketing professionals: Market advisor Richard Brock, Brock Associates, and Alan Kluis, Northstar Commodity. The producer’s final contract futures price will ultimately rest on the hedging activities of these professionals. Each hedging choice offers a guaranteed minimum price, which helps to reduce the risks that producers face in marketing grain. Although local policies may vary, generally, participants may set the contract basis at any time prior to delivery. For further details, producers may contact their local Cargill AgHorizons Farm Service Center or get more information online at www.cargill.com/aghorizons/performancemarketing/us.htm.

Start planning your 2001 wheat marketing plan
Now is a good time to put together a preharvest marketing plan for the 2001 wheat crop, suggests NDSU crops economist George Flaskerud. He suggests an example marketing plan could be to sell 10% of your anticipated wheat crop when the Minneapolis spring wheat 2001 December futures price reaches $3.80 or by April 19, 2001, whichever comes first. An additional 25% could be sold when the price reaches $4.00 or by May 17, 2001, and an additional 30% could be sold when the price reaches $4.25 or by November 15, 2001.

These are lofty price objectives relative to current prices, but not out of line with futures prices for the 2001 crop, he says.  If and when these price objectives are reached, the plan needs to be implemented. A number of marketing tools can be used to supplement this trigger-based grain selling plan. For example, selling one-third of anticipated production using a futures-fixed contract (sometimes called hedged-to-arrive) and one-third using put options would manage an enormous amount of price risk, says Flaskerud, because a floor price is established on two-thirds of anticipated production while the price is still open to the upside on two-thirds.

What if the price objectives are not reached? Then a backup must be in place, and in the example marketing plan, time deadlines are the backup, he says. The time deadlines are derived from the seasonal price pattern for wheat. Seasonal price patterns for many crops produced in ND are presented in NDSU Extension Service Bulletin EB-61, “Seasonal Price Patterns For Crops.” The publication is available on the Internet at www.ext.nodak.edu/extpubs/market.htm.

The same type of marketing plan can be used for other crops. Review your marketing plan and adjust it as new information becomes available, Flaskerud says.

Long-term wheat picture becoming more bullish
World wheat stocks have been declining the past three years, making conditions favorable for a long-term bullish market, explained Greg Konsor, wheat director at ConAgra at the Crop Outlook and Issues Forum held in Minot, ND recently, sponsored by the North Dakota Wheat Commission.

Wheat stock-to-use ratios are also getting tighter, as regular importers of wheat are keeping less stocks on hand. Konsor points out that November 1998 ending wheat stocks were 136 million metric tons. That number decreased to 127 million metric tons by November 1999, and stocks are predicted to be at 111 million metric tons this year. Further, major importing countries have decreased their stocks on hand from 47 million metric tons to 24 million metric tons in the same amount of time.

“If growing conditions in any of the major exporting countries are poor, there is a potential of raising the market price by 50 to 75 cents in a short period of time,” Konsor says. The five major wheat exporters include the US, EU, Canada, Australia and Argentina. Konsor recommends watching reports on the growing conditions and the quality of wheat coming from these areas.

Marketing 2000 Durum
High quality durum wheat is finally in the position to benefit from increasing demand, John Griffith, senior durum merchant at Cenex Harvest States Cooperatives, said at the Minot Forum.

“The quantity of high quality milling durum has significantly decreased after two years of unfavorable crop conditions,” Griffith says. “This should limit the down side to the market and has the potential to raise the price 20 to 50 cents.”

At the same time, the poor growing conditions have added to the surplus of low quality durum. These bushels are competing with corn in the feed lots. Corn prices are low due to the large 10 billion-bushel crop. The low quality durum is simply a substitute for corn in feed lots, which means it must price itself below corn. The opportunity for a price increase is extremely limited for low quality durum, Griffith says. Also, low quality durum doesn’t store well, which adds to the risk of waiting for any price action.

The stronger high quality durum market will be a factor in what is planted in California and Arizona in December and January, says Griffith, and U.S. and Canadian farmers will be watching the markets before making durum planting decisions this spring.