2015 has certainly has been an interesting year to grow wheat. Going in to the winter, the market was clearly aware that the acres sown to winter wheat in the fall of 2014 was smaller than typically expected but winter-kill, a significant frost event after heading in some areas, and rains during the perfect period to inoculate fusarium, now have everyone concerned about what we might see when this year’s winter wheat crop is harvested. From a marketing perspective, concern is exactly what we needed to see, since it has been several years since the consumers of wheat have had any reason to worry about where their supplies might be coming from, or what they might have to pay in order to secure them.
On a global scale, wheat is not scarce. Despite our production issues in the Great Lakes basin, International wheat supplies are so big that nearly a quarter of all of the wheat in the world gets carried from one year into the next, (a stocks-to-use ratio of 22 per cent). Ontario’s soft winter wheat production is so small on a world scale that it has a very limited capacity to make the price take notice, but to the buyers here it is really important.
The spreads in wheat futures right now, (which are largely the result of the size of the world’s supply), are very wide. This means that there’s a lot of money to be earned by storing wheat and selling it in the deferred delivery slots. Contracting wheat in June of 2015 for delivery in March/ April / May of 2016 can earn the producer nearly a dollar per bushel for holding their wheat off the market. Not only does this pricing strategy work for the buyer, (because they have the assurance that they’ll have wheat supplies next spring), but it also can provide some assurance to the seller. If you’re scared to contract wheat because you don’t know what this weather is going to do to the crop’s quality, selling it for movement seven or eight months after harvest also gives the marketplace seven or eight months to learn how to work with the 2015 crop. Deferring delivery won’t make bad wheat good, but it will provide time for the market to develop demand corridors for wheat of every quality.
If you’re a long-range thinker, the unique combination of wide futures carries and buyer anxiety over the assurance of supply has resulted in some phenomenal values being available for far-term forward contracting. Growers can lock in values of more than $7/bu for 2016 crop soft red wheat for shipping in the spring of 2017. To be absolutely certain, a lot of things can happen with the commodity markets over the next 20 months, but with that bid in excess of $7 per bushel, the likelihood of prices being lower in the end are far greater than the likelihood of cash prices being higher.
There is an old marketing proverb that says, “sell the rumor and buy the fact.” The Ontario wheat market is now fully engulfed in the worry and “rumor.” It won’t be “fact” until the combines roll and the buyers get a look at both the size and quality of this year’s crop.
Comments
I called multiple elevators and cannot secure anything above $6 for the 2016 crop. With basis factored in on the current crop I am only getting offers of maybe $0.40 carry to hold this crop until the spring. Where do you get prices from, as I would love to sell wheat there.