Post-Harvest Wheat Marketing Strategies

June 2016

Post-Harvest Wheat Marketing Strategies

Wheat harvest is just beginning and harvest should be in full swing soon.   In analyzing post-harvest marketing strategies over the past several years, the strategy that has given the most consistent returns is a storage hedge using on-farm storage to capture the basis improvement from harvest until winter.     

The storage hedge has given a positive return 14 out of the past 15 years.  In this strategy, a short hedge (Sell March Futures) is placed at or soon after harvest and the wheat is stored on-farm.  The hedge is lifted when the wheat is sold in December - March. 

In this analysis, variable storage costs are calculated at 5% interest plus 1 cent per bushel per month.  The wheat is placed in on-farm storage on June 15 and held in storage until December 1, January 1, February 1, and March 1 when the wheat is sold and the hedge is lifted (buy back March Futures).   The 10-year average net returns to the fixed storage costs are the following:  December1, +48 cents/bu., January1, +50 cents/bu., February1, +50 cents/bu., and March1, +52 cents/bu. 

Another strategy is to store wheat unhedged from June 15 until December – March.  This strategy has given mixed results over the years.  The goal of this strategy is to take advantage of any improvement in both basis and futures prices.  The 10-year average net returns to the fixed storage costs are the following:  December1, +48 cents/bu., January1, +46 cents/bu., February1, +29 cents/bu., and March1 +33 cents/bu.  While the average returns are slightly less than the storage hedge, the year to year returns varied greatly from +$4.92/bu. to -$2.76/bu. 

The major disadvantage of the two storage strategies is that it requires purchasing additional grain storage just for wheat or tying up grains bins for six months or longer that will not be available for corn and soybean storage.  Shorter term strategies of storing wheat either hedged or unhedged until August or September have also given mixed results.  The 10-year average net returns for a storage hedge to capture the basis improvement from June 15 to August 1 was –19 cents/bu and to September 1 was a -36 cents/bu.  The 10-year average net returns for storing the wheat unhedged for the price appreciation from June 15 to August 1 was +2 cents/bu., and to September 1 was -13 cents/bu. 

Another strategy that has been successful 8 out of the past 10 years is to sell the wheat at harvest and buy March futures to take advantage of any appreciation in the futures prices from June 15 until August 1 or September 1.  The 10-year average net returns for this strategy from June 15 to August 1 was +16 cents/bu., and to September 1 was +33 cents/bu.  While the net returns were positive, there were some wide variability in returns from year to year from +$0.79/bu. to -$0.31/bu. 

In summary, the post-harvest marketing strategy that has given the most consistent returns is a storage hedge using on-farm storage to capture the basis improvement from harvest until winter.  The downside to this strategy it requires purchasing additional grain storage just for wheat or tying up grains bins for six months or longer that will not be available for corn and soybean storage.  Another strategy that has had consistent returns the past 10 years is selling the wheat at harvest and buying March futures at or soon after harvest to take advantage of any appreciation in the futures prices from June 15 until August 1 or September 1.   It is a short term strategy and does not require storage of wheat. 

 

 

 

 

Return to Storage from Change in Basis

 

 

 

 

 

 

 

 

 

 

Return to Storage from Change in Cash Price

 

 

Sell Wheat at Harvest and buy March Wheat Futures