Melvin Brees
Farm Management Specialist
University of Missouri Extension




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June 25, 1999

Wheat -- Sell or Store?

Like almost everything else, wheat prices are low. Central Missouri cash bids were in the low $2 range ($2.00 to $2.20) late in the week. The LDP varies some from county to county, but is near thirty cents. This produces a net price of almost $2.40 to $2.50 by making a cash sale and collecting the LDP. Does storing the wheat offer any better opportunities?

Price Outlook: Most analysts aren't expecting much out of the wheat market at the present time. Lower world production and gradual working down of supplies may eventually improve prices, but supplies are large. Ending stocks from 1998/99 crop are the largest since 1988 at 969 million bushels. New crop (1999/2000) ending stocks are projected to only drop to 865 million bushels. Current prices do allow wheat to compete as a feed grain, but corn supplies are also large along with low prices. Without crop weather problems, price gains will probably be limited.

Market Carry: Market carry is the difference between nearby futures prices and distant month futures or what the market is offering for storage. On Thursday (6-24-99), July Chicago wheat futures contracts closed at $2.50 while December was $2.76 1/2 and March was $2.87 3/4. The market is offering more than twenty-six cents to store until December and nearly thirty-eight cents until March. Depending upon storage charges and interest rate, this covers most storage costs -- suggesting that the market is saying store!

Basis: Current cash bids suggest a basis (difference between cash price and futures price) similar to recent years. The problem with storing wheat in Central Missouri is that basis is usually weaker (wider) in the fall than it is during wheat harvest. If late summer price gains don't offset the weaker fall basis, you may need to store the wheat into early winter. This could be a problem if you need the storage space for corn or soybeans.

What does storage offer? Outlook projections don't offer much in the way of expectations for significantly higher prices even with long term storage, but storing wheat would allow you to avoid selling at current low prices. Market carry says that storage returns are possible. Normal basis patterns and price outlook suggests that you should be prepared to store until December or maybe even longer. The market loan or LDP does support prices at about $2.50 (or county loan price) and offers some downside price protection -- assuming you don't go ahead and collect the LDP.

Selling the wheat and re-owning it on paper is another possibility. However you would give up the market carry and, if you use call options, you would be out the premium. Sell or store? Price opportunities may be limited. However, low prices along with the market loan limits the storage risk. Storing the wheat avoids selling at low prices and may offer storage returns. -- Melvin

University of Missouri ExtensionDecisive Marketing - June 25, 1999 -- Revised: April 20, 2004