If your marketing strategy has been to sell wheat in one-third increments between harvest and January 1, this may be the year to sell a higher percentage at harvest. You may want to sell 50 percent at harvest and the remainder in one-fourth increments between August and January.
Price movements during the last five years have humbled most market analysts and prognosticators. At times, price movements have appeared random and contrary to current supply and demand conditions. Many market analysts have switched from predicting prices to managing price risk.
The current U.S. and foreign wheat supply situations are of adequate but below average supply and relatively strong demand. The strong demand is partially the result of extremely short supply of the feed grains. Above average wheat demand is from both the food market and the feed market.
Below-average supply and above-average demand has resulted in above average prices. At this writing, Oklahoma and Texas Panhandle wheat prices are in the $7.15 to $7.35 range. The KCBT July contract wheat price is about $7.38.
Oklahoma and Texas Panhandle June wheat prices for the years 2008 through 2012 averaged $6.40. The average June prices have ranged from a high in 2008 of $7.93 to a low of $3.75 in 2010. The average June price in 2012 was $6.48. Since June 2008, wheat prices in June have ranged from a low of $3.39 to a high of $9.05.
Each June from 2008 through 2012, the difference between the high price for the month and the low price for the month was calculated. The average low to high difference (range) for the five Junes was $1.35. The largest June price difference was in June 2011 at $1.97 and the smallest price difference was 52 cents in June 2010.
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A cash price that is 90 cents above the five-year average supports selling a larger than normal percentage of wheat at harvest.
Market information indicates that tight corn stocks resulted in wheat prices being 80 cents to $1 above what they would have been with an adequate supply of corn. With a predicted 14 billion bushel crop and with 2013/14 U.S. corn ending stocks predicted to increase from 759 million bushels to 2.0 billion bushels, feed demand for wheat will decline.
The result will be relatively lower wheat prices. Rain-delayed corn planting will delay the corn harvest. It may be September before the wheat price impact from tight corn stocks will completely disappear.
World wheat ending stocks for the 2013/14 wheat marketing year are projected to increase 3.4 percent and remain below the five-year average. Wheat ending stocks for the U.S. are projected to decline about 8 percent and remain below average.
Below-average wheat stocks should result in above-average wheat prices. The five-year average annual Oklahoma and Texas Panhandle wheat price is about $6.37. Wheat prices can decline from the current $7.25 and still be above average.
There is no market indication on which direction wheat prices will go. What the market does know is that prices will change and that the change can be dramatic. What each producer must decide is which will hurt worse: “Sell now and not have the opportunity to receive a higher price,” or “Not sell now and have to receive a lower price.”
Dollar cost averaging (selling across time) tends to work relatively well. But when prices are above average the odds favor selling a higher percentage than normal.