Planting decisions
Planting decisions are things farmers can control as they prepare to seed 2017 crops.

Pay attention to what you can control

Producers cannot control price, and prices will change between now and harvest. But they can control what they produce with their land, labor, capital, and management.

Producers sell their commodities for a price offered by the market. The truth of the matter is that producers have little or no control over the price offered. They sell the commodity produced. They market land, labor, capital (money), and management by selecting the most profitable commodity to produce with these four assets.

To select the commodity with the highest odds of producing the most profit requires knowledge about what prices the market is offering.

Wheat producers are currently deciding whether to harvest wheat, graze it out with cattle, bale it, or destroy it and plant summer crops. Forward contract prices offered by local elevators for harvest-delivered commodities may be used to determine the potential profit for each alternate crop (Table 1).

Forward contract prices are mostly determined by adding a positive (subtracting a negative) basis to an underlying futures commodity contract price. The forward contract wheat basis for most Oklahoma elevators is between minus 96 cents and minus 79 cents. For Texas Panhandle elevators it’s between minus $1.02 and minus 70 cents.

IMPLIED HARVEST PRICES

At this writing, the KC July wheat contract price is $4.80. Using a minus 80 cents basis implies that the expected harvest price for wheat is $4.00. Forward contract basis for corn in the Texas/Oklahoma Panhandle area is from minus 25 cents to minus 20 cents. Oklahoma corn harvest basis ranges between minus 75 cents and minus 60 cents.

Using minus 25 cents for the Panhandle area, minus 65 cents for Oklahoma, and a CBT December corn contract price of $4.00, the expected price of corn is $3.75 in the Panhandle area and $3.35 in Oklahoma.

The sorghum basis is between minus 90 cents and minus 70 cents in the Texas/Oklahoma Panhandle area, and between minus 85 cents and minus 75 cents in Oklahoma. Using a minus 80 cents basis and a CBT December corn contract price of $4.00, the expected sorghum price is $3.20.

In southwestern Oklahoma and the southern part of the Texas Panhandle, cotton is often an excellent alternative crop. Using the December cotton futures contract price of 74 cents and minus 5 cents basis, the cotton harvest price is expected to be in the 69 cent range.

SOYBEANS AND CANOLA

A few producers may destroy or harvest their wheat and plant soybeans. The forward contract basis for soybeans is minus 75 cents in most of Oklahoma and between minus $1.00 to minus 90 cents in the Texas Panhandle.

At this writing, the CBT November soybean contract price is $10.15. Using minus 75 cents basis produces an expected price of $9.40.

Some producers planted canola rather than wheat. At this writing, canola can be forward contracted at some elevators for between $6.86 and $7.03 per 50-pound bushel.

Producers cannot control price, and prices will change between now and harvest. But they can control what they produce with their land, labor, capital, and management.

Current forward contract price offers are useful in selecting the commodity with the highest odds of a profit.

   

Table 1. 2017 Harvest Forward Contract Prices: 2/22/17

Commodity

Futures Contract

Basis

Harvest Price

Wheat

$4.80

-$0.80

$4.00

Corn, Ok

Corn, Tx

$4.00

-$0.65

-0.25

$3.35

$3.74

Sorghum

$4.00

-.080

$3.20

Soybeans

$10.15

-$0.75

$9.40

Cotton

$0.74

-0.05

$0.69

Canola

$523

($Tns/42.1)-

$5.50

$6.90

 

   

 

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