Sell Wheat By “The Deer Hunting Rule”

By Betsy Jensen
NTCT Instructor

Your bins are full. Your operating loan is unpaid and accumulating interest costs. You are waiting for wheat prices to rise, but when do you finally pull the trigger?

We’ve been hearing for the past three years that wheat prices should be rallying, and yet futures drift back to the same level every month. The $3.15 Mpls futures price seems to be a magnet, with futures slowly drifting to that value, and expiring with a whimper. Farmers are well aware that harvest is typically a low for prices. There is just too much grain in the pipeline and the market does its best to make sure the wheat stays off the market.

Now that harvest is behind us, cash prices should be improving, and it’s time for us to start making wheat sales.

November is an ideal time to make wheat sales because the futures and the basis typically rally (See chart below). Harvest is over, there is a final rush to get grain out of Duluth before Lake Superior freezes, and there is usually a winter wheat weather scare to give us some support.

Members of my marketing groups have established a “deer hunting” rule: You have to sell wheat before you leave for deer hunting. In Minnesota, deer hunting begins the first week of November, and that is an ideal time to be making wheat sales. One reason we use deer hunting is because few farmers forget that date. I would guess that 95% of the members in my marketing groups go deer hunting, so there are no excuses for forgetting to make grain sales.

It’s up to individual farmers to determine how much wheat they want to sell. If you’re nervous to make sales, try asking yourself this: How much wheat do I want to hold? You can say “I’m going to sell 25%,” but when you reverse that and say “I’m going to hold 75%,” it makes you realize just how small that 25% sale is.

My preference for wheat sales is to set price and time deadlines based on seasonal rallies. For example, I will sell wheat when my local cash price is $3.25, or by Nov 1. That way I can still take advantage of the seasonal strength, even if my $3.25 cash price is never hit.

Here’s a wheat selling plan to consider: Sell 1/5 of your crop if the price reaches $3.39 Dec or by Nov 1; sell 1/5 by Nov 15 or if Dec wheat futures reach $3.49; sell 1/5 if the nearby wheat price reaches $3.58 or by Dec 1; and sell 1/5 if the nearby price hits $3.68, or by April 15 and sell the last 1/5 when wheat hits $3.75, or by May 1. The staggered times for selling are based on when the wheat price is at its seasonal highs.

One fear group members have about time deadlines are low prices. What if my cash price is only $2.80 on Nov. 1? Do I still have to make grain sales? The answer is yes, you have to make wheat sales regardless of price. Your time deadline is a deadline that cannot be broken. November is seasonally a strong time for wheat prices. If cash prices are $2.80 on Nov. 1, the seasonals suggest that the futures could be $2.50 on Dec 15. That is the risk you take by waiting. The price might look horrible on Nov 1, but it could look even uglier if you wait to make sales.

When I talk about selling wheat, that doesn’t mean you have to load up the truck and drive to town. All you need to do is make a phone call and price some wheat. You can sell wheat for delivery in 2 weeks, or delivery in 2 months! Many farmers like to defer sales until after Jan 1, and you can still do that with your time deadline. Your time deadline does not mean you have to empty your bins, it just means you need to price grain for delivery at some period.

Historically, there are usually two key seasonal peaks for wheat—one in November and the other is the spring rally. If you choose to hold wheat past November 15, the seasonals won’t give you another chance to sell until late April or early May. Obviously seasonals don’t work every year, but then again, no one can accurately predict prices every year. The proven pattern of seasonal price trends, more often than not, are more accurate than our gut instincts for selling wheat. Year after year, using seasonals will help make better grain marketing decisions. That said, make sure you price some wheat in November, perhaps before you slip on that orange deer hunting jacket.

                   Seasonal Movements in Minnesota Wheat

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