Post-Harvest Wheat Marketing Strategies

 

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 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 every year for 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, 51 cents/bu., January1 51 cents/bu., February1 52 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 both basis and futures price appreciation.  The 10 year average net returns to the fixed storage costs are the following:  December1 52 cents/bu., January1 51 cents/bu., February1 33 cents/bu., and March1 41 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 -$2.59/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 -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 +3 cents/bu., and to September 1 was -13 cents/bu. 

 

Another strategy that has a 10 year positive return 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 +15 cents/bu., and to September 1 was +31 cents/bu.  While the net returns were positive, there was a wide variability in returns from year to year from +$0.76/bu. to -$0.34/bu.   

Return to Storage from Change in Basis

 

 

 

 

Return to Storage from Change in Cash Price

 

 

Sell Wheat at Harvest and buy March Wheat Futures