Looking at long-term average: When is single best time to sell wheat? Analysis points to fall

Many producers want to find someone that can “beat” the market. They want to be told the date prices will bottom out and at what price. Then they want to know how high prices will go and when will the peak occur. No one can consistently supply this information.

So, when is the best time to sell wheat? It depends on the year, ownership costs and the producer's financial condition. No two producers face exactly the same marketing decision.

For the 2004 U.S. hard red winter wheat crop, to date, the best time to sell wheat was in early April when wheat could have been forward contracted for $3.82. Assuming half of expected production was forward contracted and the remainder was sold at harvest, the average price received was $3.61.

Net price $3.07 Now

At this writing, cash wheat prices are about $3.18. Subtracting 2.5 months storage and interest makes the net price about $3.07 ($3.18 - $0.11) compared to a June 20 price of about $3.40. Assuming that the highest potential price was $3.61 from forward contracting one half of expected production in April and selling the remainder at harvest, the Dec. 1 cash price would have to be above $3.84 to beat what has already been offered ($3.61 plus 23 cents storage and interest).

Reviewing past marketing years and determining the best time to sell wheat for each year shows that the “best” strategy and time changed from year to year. The results also show that the “best” strategy and time depends on a producer's storage and interest costs and financial condition.

Different results may also be obtained by averaging strategies over time. For example, if wheat had been sold each year on June 20, the 5-year average price was $2.66, the 10-year average was $3.12 and the 17-year average was $3.02.

Long-term average

A 17-year average price was used in the following analysis. If all wheat were sold at harvest the net price would have been $3.02. Forward contracting in April netted $3. Storing and selling in mid-October netted $3.05. Selling in mid-November netted $3.03. Selling one-third at harvest, one-third mid-September and the final one-third mid-November netted $3.02.

This analysis implies that it is most profitable to store wheat and sell it in the fall. Even though there is a difference in the net price received, a statistical analysis indicates that there is no “statistical” difference between the above prices received. This means that by selecting a different day (for example June 21 rather than June 20), the results could change enough to change the average prices.

Research continues to show that “it does not matter when the wheat is sold as long as it is sold before Jan. 1 of the marketing year.” Over time, wheat prices tend to average out.

Another research project used purchase records from three elevators that purchased a combined 4 million bushels of wheat each year. The records showed the date, bushels bought and price paid for each purchase from producers for a nine-year period.

The results indicated that during the nine-year period 1992 through 2001, the best time to sell wheat was at harvest. However, there was little difference in the price received by producers that constantly sold at harvest, producers that constantly sold later in the marketing year and producers that sold at different times each year during the nine-year period.

Lessons learned

Three lessons were learned. First, producers that received the lowest net price stored wheat past Jan. 1 or stored wheat for several years. Second, over many years, it makes little price difference when wheat is sold as long as it is sold before Jan. 1. Third, storage and interest costs alter the timing of sales.

The above results are based on commercial storage costs and production loan interest. If a producer has on-farm storage, lower interest costs (self financing) or both, the highest net price was received by storing wheat until October or November. Storing wheat past January was still not a good idea.

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