Harvest may not be the best time to sell wheat

I started research in 1987 to determine when was the “best” time to sell wheat. The unequivocal answer was “harvest.” Every year I updated the research with the most recent wheat prices and generated a new answer. This year's answer is different than I expected and is what a professor and wheat farmer told me the best time to sell should be.

His contention was that “if wheat is sold anytime before February, it does not matter when the wheat is sold.” The data now supports the professor/wheat farmer's belief.

Since I started the research, the storage hedge was the only marketing alternative that was statistically different from the other alternatives. There was a price difference between all the alternatives. If the last two years' prices are not included, then “selling at harvest” produced an average price two to 10-cents higher than other alternatives. When the last two years' prices are included, “selling at harvest” is three cents less than “selling in the fall” or “selling the wheat at harvest and buying “at the money” KCBT December call option contracts.”

The research included both pre-harvest and post-harvest marketing alternatives. Pre-harvest alternatives included forward contracting, forward contracting and buying call option contracts, buying put option contacts and hedging. Pre-harvest pricing was restricted to 50 percent of the 10-year average production. It was assumed that pre-harvest decisions were made about April 1.

The results for the 18 years from 1986 through 2003 indicated that selling at harvest every year produced an average price of $3.02 per bushel. Forward contracting on April 1 each year averaged $3, forward contracting and buying call options averaged $2.99, buying put options averaged $2.98 and hedging on April 1 averaged $2.97.

Statistically, there is no difference between these alternatives. Daily price changes could easily make up the five cents between the highest and lowest average price.

Post-harvest strategies included selling all wheat at harvest, selling all wheat on October 15, selling one-third of the wheat at harvest, one-third on October 15 and the final third on December 15, selling all wheat at harvest and buying “at the money” call option contracts and storing wheat and selling KCBT December wheat contracts (storage hedge).

For the wheat crop years 1986/87 through 2003/04, selling wheat on October 15 or selling all wheat at harvest and buying “at the money” Dec calls option contracts both produced an average price of $3.05. This was three cents higher than selling at harvest or selling the wheat in thirds — at harvest, October and December ($3.02). Storing wheat and selling KCBT December contracts to establish a storage hedge produced an average price of $2.95.

Except for the storage hedge, selling wheat at harvest or after harvest produced higher average prices than selling wheat before harvest. This is to be expected if a market is efficient. An efficient market should charge a risk premium before harvest and should pay carry (storage plus interest) after harvest.

Another research project that uses actual producer sales dates, prices and bushels sold has produced consistent results with the results reported above. Preliminary results indicate that over time, prices average out. This implies that most producers are neither lucky nor unlucky all the time and that prices received tend to average out.

The research does show that there are times not to sell. This includes late July and early August and, for the most part, after January.

Now, if you can predict wheat prices or know someone that can, then these results are not for you. Of course if you can predict prices, you will have enough money so that it does not matter when you sell your wheat.

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