The old saying “The more things change, the more they stay the same” is true and seems to be more that way as we move forward. The things that are changing are the markets. At times, we hear producers say there is no rhyme or reason for input costs to be moving higher or prices we can sell at to be moving lower. The answer to this is: You are absolutely right. The movement in the market at times just doesn’t make any sense.
However, the market is moving, and maybe we ought to be looking at the opportunities the market is giving us when this happens. We don’t have any say in the direction the markets move or the volatility they are experiencing, but what we do have is the ability to study and make our marketing decisions based on what we know.
The agricultural business, especially farming and ranching, is always a work in progress. You might say we are always trying to hit a moving target that sometimes is moving faster than we can adjust for. For example, let’s take a look at the Chicago March wheat contract. Between the middle of October and Thanksgiving, we moved $1.31 per bushel higher, which was 180 degrees from the historical trend. Then, from Thanksgiving into the middle of January, the market moved $1.26 lower. This also was the opposite of the historical trend.
Did this market give us any opportunities to contract our wheat? When the market is doing something it normally doesn’t do, is there an opportunity for us? The answer is: yes. There are always opportunities. Now, I do understand why it is difficult at times to contract your wheat.
After all, we don’t get to replace that bushel until next harvest, and we need to do the very best we can. However, we may only have the opportunity to contract at that day’s price one time, and we really won’t know if that is close to the high we are looking for until we are able to look back. We never know if our decisions are right or wrong until later. In other words, history will tell us. Knowing this tidbit of information should help us make life just a little easier.
The futures markets trade on what the news and information is today. The market could change its opinion and direction tomorrow if the news changes. When we look at our operations, we could say we are just like the futures markets. We can only make our marketing decisions based on what we know today.
The question we should ask ourselves is: What level are the futures trading, and what do we feel they will do in the weeks ahead? The next question is about the basis. Is the local basis strong or weak? What is the historical trend from here forward? Remember, the basis is just maybe our best indication of the local demand. When the basis is strong is our best opportunity to contract our wheat. If buyers contract their needs, the demand has weakened, the market becomes thin, and we have missed our opportunity to contract at a good or profitable level.
The futures could give us some good opportunities to market wheat we still have stored on the farm into the first half of March. From then into July, the markets are historically very volatile as we begin to really trade the weather. Between now and harvest, we will see HRW come out of dormancy, and we’ll plant DNS, corn and soybeans. During all of this, the markets will be watching to see if we are too wet, too dry, too cold or too hot.
You may be able to wait until May to sell wheat that is still on the farm, but by then you are running the risk of the local demand becoming very thin. Oftentimes, feeders and flour mills will be looking at their positions and determining if they have enough grain in store and on contract to make it to new crop.
When we look at futures markets that are flat or trading an inverse, as we have this year, it doesn’t pay us to hold old crop into new. It will be important to also look at the bids for our 2022 crop. At this time, the basis for new crop is low, as it usually is this time of the year. You need to be looking at ways you can lock in the futures side of your cash price equation, and then lock in the basis at a later date. Pricing your wheat using this strategy isn’t difficult to do; it’s just different than what you may have done in the past.
