Big Wheat, Big Risk

August 3, 2016 02:23 AM
 
Big Wheat, Big Risk

Largest crop volumes in years mean a solid sales strategy is vital

The size of this year’s U.S. winter wheat harvest is far bigger than many producers have seen in years. Farmers need to map out sales carefully to manage around bearish prices expected to linger into the 2017/18 season. 

“Yields look very promising, much better than the last two years,” says Tregg Cronin, a fourth-generation producer from Gettysburg, S.D., who also provides market analysis for Halo Commodities. 

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                Hefty supplies of U.S. wheat leave                   producers with several options, such as             making sales on rallies or using a market            assistance loan. 

In places such as the High Plains and far western wheat states that typically see 40 bu. per acre in a great year, farmers are experiencing yields of 80 bu., 90 bu. and even 100 bu. per acre, says Arlan Suderman, chief commodities economist at INTL FCStone Financial’s FCM Division.

Protein Premium. Yet a big crop doesn’t come without challenges. The protein level of the crop across all wheat-producing states is low, Suderman says, putting it in competition with corn and grain sorghum for feed buyers’ dollars. Still, the milling characteristics of available protein are “very good,” adds Kim Anderson, Extension economist at Oklahoma State University.

If your crop bucks the trend and has higher protein levels, shop around for the best premium, Suderman says. Export markets are one option. Locally, farmers can sell wheat to livestock feeders, says Tanner Ehmke, senior economist for grains, oilseeds, ethanol and farm supply at Denver-based CoBank. For example, he recently spoke with a hog feeder in western Kansas who is paying for wheat with protein counts as low as 10% at just 90% of the normal cost of corn.

If your crop is big but of average or low protein quality, you have several marketing options for selling new-crop wheat, experts say. One of them is the federal government’s market assistance loan program.

“My recommendation is to put it in the government loan,” Anderson says. “That will give [you] nine months for the market to recover, if it’s going to recover. If not, they’re going to be out storage, which is about 4¢ per bushel per month, and interest is a penny to a penny and a half a month.” 

Sales Strategies. Producers with on-farm storage or storage bags are often opting to keep the crop at their operation into the fall to be hedged. Some producers have taken advantage of the carry in the market by delivering their wheat to the elevator, getting a warehouse receipt and contracting it for 2017 delivery because of the premium offered on 2017 wheat futures. 

A weather scare is the shift needed in fundamentals to move wheat prices higher, Suderman says. On the technical side, Kansas City wheat futures need to reach $4.60 before analysts confirm a market bottom.

He advises producers to use a marketing loan to provide cash flow and to be prepared to make sales on rallies. Ehmke suggests making incremental sales over the next four to five months to see if a post-harvest recovery will emerge.  

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