Market Insider

Thinking New Crop Wheat Sales

Around this time of year, I’m always getting asked by farmers and grain buyers alike about new crop sales sentiment. Usually what results is a conversation about the direction of the market (bearish vs bullish indicators) and reducing some of your exposure to the downside risk. Often, this is the time of year when we start to see some weather premium built into the market, therein presenting some sales opportunities that should not be ignored. Thus, I’ve put together a lot of charts to help you visually navigate why locking in some sales now for harvest delivery is the smart bet.

First, we start with hard red spring wheat, a staple of the Canadian Prairies. From a spot price perspective, as the chart below shows, we tend to see a little rally around this time of year, before the multi-month pullback that usually bottoms in the 2nd or third week of September. From a futures perspective, it’s obviously a similar dynamic as the market pulls back over the growing season before starting its rebound in in September.

 

 

 

 

 

 

 

 

If I’m looking specifically at options today for September delivery, new crop HRS wheat prices are sitting pretty close to where we were a year ago. And while it would be nice to see the values of 2017 (attributed to drought concerns that year), I’m doubtful that this will happen. Nonetheless, new crop HRS wheat basis levels are the best that they have been in a number of years. Accordingly, it looks like a smart play to lock in the basis now and then price out the futures in the next 3 months.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a heads up, I’m discussing a “default” basis here and you should ensure you understand if your contract is this type or a “currency” basis”. Further, pricing out the futures before the end of June looks to be a good choice, given the historical downturn of the Minneapolis contract thereafter. An alternative option is to lock in delivery for some time in 4Q2020, as this gives you the option to price off the December 2020 futures contract, and thus, many more months to price in the futures. Being 20% sold on new crop HRS wheat is where I’m at today. If you have concerns about quality, consider locking contracting some #2 grade instead of #1, and anything bad out of ALL the fields that you harvest could be applied to that deal.

If you’re growing lower protein wheat this year, you’re probably doing so because of the profitability it’s providing; heck, we’re still seeing old crop bids above $6 CAD/bushel for in north central Alberta on our Combyne Marketplace! That said, like most crops, we tend to see CPS wheat prices pullback over the summer months before starting a long, drawn-out rally through to January.

 

 

 

 

 

 

 

 

Thinking about contracting some new crop CPS wheat prices? Like HRS wheat, you might want to start with locking in some basis as new crop basis for September delivery is the best it has ever been. Thus, like HRS wheat, you opt to lock in the futures of the next few weeks, or play a longer game and contract off the December futures. As a reminder, CPS wheat prices are pegged off the Kansas City HRW wheat exchange but be sure to double-check with your buyers in terms of which futures exchange and contract they’re pegging your deal to. For new crop sales of low-protein wheat, I’m looking to be up to 35% contracted.

 

 

 

 

 

 

 

 

 

We end with durum, which has taken the front seat as the best performing cereal thus far of 2020 (for the record, milling oats are making a strong case too!) While we continue to see $9 CAD/bushel old crop durum bids for FOB farm pick-up across Western Canada on our Combyne Marketplace, new crop values are the best they’ve been in nearly 4 years! The 2017/18 crop years were the anomaly here as drought concerns helped push average durum bids across Western Canada to nearly $9/bushel by early August that year, before normalizing.

That said, if we do see some weather issues pop into the market, we should certain only return to those values, if not higher. However, having that “weather hope” as the principal driver of your durum marketing plan is not smart risk management (just look at the last few years of spot durum prices in the chart below for confirmation). Again, the end of 2016/17 and start of 2017/18 is the anomaly, but we haven’t been anywhere near these levels. That is, until today, and that’s why I’m flagging it as a sale indicator! Accordingly, I’m looking to be up to 40% sold on new crop durum.

 

 

 

 

 

 

 

 

 

 

The only reason my new crop wheat sales aren’t higher is because of the further upside I think wheat prices have, the longer that COVID-19 restrictions are in place. Therein, we have no restrictions on our Combyne Marketplace, as, with over 200 different credit-verified wheat buyers on it, you can shop your old or new crop wheat deals very efficiently, and because Combyne is free, it’s obviously very cost-effective!


To growth,

Brennan Turner

CEO | FarmLead
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