Post-Harvest Wheat Marketing Strategies

June 2018

Post-Harvest Wheat Marketing Strategies

Wheat harvest is just around the corner and I want to look at several  post-harvest marketing strategies.   The strategy that has consistently given the best returns with less risk is sell the wheat at harvest.  The returns are calculated using June 15 as the harvest price with a 6% opportunity charge.  When calculating the returns from the cash price on June 15 to the cash prices in December through March, the 10-year average net returns are the following:  December 1, +8 cents/bu., January 1, +7 cents/bu., February 1, +20 cents/bu., and March 1, +25 cents/bu.   In addition, there are no variable or fixed storage costs. 

The storage hedge strategy has also given consistent returns but with more risk and additional costs.  This strategy attempts to capture the basis improvement from harvest until winter utilizing on-farm storage.   

The storage hedge has given a positive return 15 out of the past 15 years.  In this strategy, a short hedge (Sell March Futures) is placed at or soon after harvest and the wheat is stored on-farm.  The hedge is lifted when the wheat is sold in December through March to capture the improvement in basis. 

In this strategy, variable storage costs are calculated at 6% interest plus 1 cent per bushel per month.  The wheat is placed in on-farm storage on June 15 and held in storage until December 1, January 1, February 1, and March 1 when the wheat is sold and the hedge is lifted (buy back March Futures).   The 10-year average net returns are the following:  December 1, +46 cents/bu., January 1, +51 cents/bu., February 1, +50 cents/bu., and March 1, +51 cents/bu. 

Another popular strategy is to store wheat unhedged from June 15 until December through March.  Variable storage costs are calculated at 6% interest plus 1 cent per bushel per month.  This strategy has given mixed results over the years.  Over the past 10 years, it has given positive returns only 2 - 3 years.  The goal of this strategy is to take advantage of any improvement in basis and/or futures prices.  The 10-year average net returns are the following:  December 1, -14 cents/bu., January 1, -14 cents/bu., February 1, -27 cents/bu., and March 1 -34 cents/bu.  While this strategy has given some big results in some years, the year to year returns varied greatly from +$3.48/bu. to -$2.79/bu. 

The major disadvantage of the two storage strategies is that it requires purchasing additional grain storage just for wheat or tying up grains bins for six months or longer that will not be available for corn and soybean storage.  In addition, the returns to the two strategies do not include the in and out storage costs (you never take out as many bushels as you put in the bin), insect control, extra drying and aeration, and additional labor and management.  These additional storage costs could easily run an extra 20 – 40 cents per bushel. 

Shorter-term strategies of storing wheat either hedged or unhedged until August or September have also given mixed results.  The 10-year average net returns for a storage hedge to capture the basis improvement from June 15 to August 1 was –20 cents/bu. and to September 1 was a -34 cents/bu.  The 10-year average net returns for storing the wheat unhedged for the price appreciation from June 15 to August 1 was -14 cents/bu., and to September 1 was -52 cents/bu. 

Another strategy that has been successful 8 out of the past 10 years is to sell the wheat at harvest and buy March futures to take advantage of any appreciation in the futures prices from June 15 until August 1 or September 1 when the futures contact is sold.  The 10-year average net returns for this strategy from June 15 to August 1 was +14 cents/bu., and to September 1 was +32 cents/bu.  While the net returns were positive, there were some wide variability in returns from year to year from +$0.68/bu. to -$0.33/bu. 

In summary, the post-harvest marketing strategy that has given the most consistent returns with less financial risk is sell the wheat at harvest.  A storage hedge using on-farm storage to capture the basis improvement from harvest until winter has consistently given good returns but with additional costs and risks.  The downside to this strategy it requires tying up grain storage for six months or longer.  Also, the in and out storage costs, insect control, extra drying and aeration, and additional labor and management can reduce the returns by 20 – 40 cents per bushel.  Another strategy that has had consistent returns the past 10 years, and does not require storage, is selling the wheat at harvest and buying March futures at or soon after harvest to take advantage of any appreciation in the futures prices from June 15 until August 1 or September 1.

 

 

Return to Storage from Change in Basis

 

 

 

 

Return to Storage from Change in Cash Price

 

 

 

 

 

 

Sell Wheat at Harvest and buy March Wheat Futures