Issue 24
Prairie Grains Magazine
1999

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 Assocation.

Copyright Prairie
Grains Magazine
Nov/Dec  1999

Grain Market Gleanings

By Tracy Sayler

What should you store, sell

You've got the grain harvested and in the bin.  When you need the cash, what should you sell first, and what's better to keep in storage? In prioritizing sales, look at which markets have the best chance of rebounding into next spring.  Market experts thus agree that you should sell beans first, then wheat, replacing cash sales with options.  Corn is best to hang onto, particularly if you take advantage of significant "carries" in the market.  In deciding between sunflower and wheat, you may wish to sell wheat first, and store sunflower in hope for a better price later.

"Take the LDP and sell cash on beans, there's no reason to put beans under loan for longer term.  Sell beans first, then wheat.  You might want to store durum for better prices later, because I don't think there's a lot of high quality durum out there.  And it definitely pays to store corn now because of the huge carries in the market," says Sheldon Laib, Futech Commodity Services, Moorhead, MN.

So what's a carry?

When the deferred value of a futures price is higher than the nearby futures price, that's called a "carry."  It means there's a better return to storage.  When the deferred value of a futures price is lower than the nearby, that's called an "inverse."  Thus, a market expert might look at the "spread" (the difference between two futures prices) and employ certain selling strategies to take advantage of the "carry," for example, between December wheat futures of $3.25 and May wheat futures at $3.55.  A hedge-to-arrive or basis contract is often used in a carry strategy. 

Will wheat storage into spring be profitable?

There may be modest rallies, but sharply higher prices later in the marketing year does not appear likely unless the pace of exports suddenly increases, weather adversely affects the winter wheat crop or there is a change in the government program, says George Flaskerud, NDSU extension grain marketing specialist. The U.S. and world fundamentals for wheat are too negative at the moment to promise significant rallies next spring, he says.

Historic trends do indicate that wheat prices move up from harvest lows in the November time frame.  Thus, watch for selling opportunities on any seasonal rallies, advises Flaskerud.  Again, however, these rallies may be modest at best.  Watch for carries in the market that would make it worthwhile to sell in later months. 

When protein premiums peak

Protein premiums tend to peak in September-November, according to NDSU.  Discounts for low protein tend to peak in the fall as well, and dissipate into the following spring. If deciding whether to sell or store low and high protein wheat, sell the higher protein wheat sooner—14% protein wheat or better in late fall or early winter, especially if protein premiums are attractive—and store lower protein wheat in the hope of less market discounts later.  "If you're not satisfied with the cash price but still would like to sell, then consider replacing it with futures or options and owning it that way," says Laib.

Watch the basis, don't get complacent

Keep a close eye on the basis (the difference between the futures price and your local price) and take advantage of an improvement in price, advises Keith Banta, Country Hedging, St. Paul.  "Wheat could pick up 25 cents in the cash price with a basis improvement," he says.  Also, remember the lessons from last year: Taking the LDP and sitting on grain wasn't fruitful in many cases.  "Be sure the bottom is in before taking the LDP. Take the LDP and consider covering yourself with a put option to protect against further downside price movement. If you took the loan, don't get complacent with just leaving grain in the bin.  Complacency is what killed the basis this year, because of old crop movement at new crop harvest," says Wayne Olson, Benson Quinn Commodities, Grand Forks.

Corn producers should consider taking the loan deficiency payment (LDP) at harvest, says Flaskerud.  On price rallies of 10 to 15 cents, most likely after harvest, consider selling corn using a hedge-to-arrive (HTA) elevator contract or futures hedge, targeting the July futures contract. Fixing the futures price in the July contract is preferred to a cash sale because of a weak basis and because the distant futures contract offers a better pricing opportunity. Delivery should be planned for early June. This method of selling is called a storage hedge.

Look at the "what ifs" with strategies

Marketing with risk management in mind is preferable to speculation, says Banta. "Develop strategies looking at different "what if" scenarios.  What's better if the price goes up or if it goes down? Know your alternatives, and consult with someone if necessary for what works best."

Developing marketing plan focus of meetings

Understanding and developing written marketing plans will be the focus of a series of meetings from Nov. 19-Dec. 1, sponsored in part by the Minnesota Association of Wheat Growers. "Over time, producers who use a written marketing plan will tend to make more money on the sale of their crops and livestock," says Keith Banta, Country Hedging.  There is no fee to attend the two-hour-long meeting, but RSVP's are required. To reserve a spot, call 612-233-0333.  Meeting sites include: Nov. 19, 8:30 am, NW Tech College Moorhead; Nov. 19, 6:30 pm NW Experiment Station, Crookston; Nov. 29, 6:30 PM Best Western, Morris.

Crops, livestock market planning workshops in ND

Establishing a crop and livestock marketing plan and learning how to join a marketing club are the focus of meetings to be held across ND in December, led by local marketing club facilitators at each site and George Flaskerud and Harlan Hughes, extension crops and extension livestock specialists at NDSU, respectively. Registration begins at 8:15 am at all meetings. The program starts at 9 am and ends at 4 pm. Admission is $5 and can be paid at the door.  Date, city and location: Dec. 7 Dickinson Travel Lodge; Dec. 8 Bismarck Doublewood Inn; Dec. 9 Fargo Holiday Inn; Dec. 14 Williston International Inn; Dec. 15 Minot Holiday Inn; Dec. 16 Grand Forks Ramada Inn.

Will Y2K affect markets?

The threat of Y2K problems isn't likely to unnerve a global market with ample grain supplies.  Still, some grain market experts say the event can't be discounted as a market factor, with some "hand-to-mouth" buyers potentially increasing grain inventories before year's end, to prevent any interruptions in supply.  At any rate, Y2K has the potential to provide at least some drama to the markets during the holiday season, when markets are otherwise quiet.  Consult with a grain broker for perspective on potential strategies and sales opportunities.

Although timely, appropriate grain marketing strategies may be profitable, these strategies involve risk, and Prairie Grains nor the sources cited assume liability for their use.