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Posted 26 September 2006. Crop Management. Winter Wheat Poses Marketing Challenges South Dakota State University. www3.sdstate.edu Brookings, South Dakota (Sept. 7, 2006) - Have a marketing and risk management strategy in mind if you plant winter wheat this fall.
That’s the advice of South Dakota State University specialists, who say high prices are causing more producers than usual to consider winter wheat. “In the past weeks we’ve seen the new crop contracts for both spring wheat and winter wheat in excess of $4.50 a bushel, as high as $4.75,” said SDSU Extension Marketing Specialist Al May. “That would likely equate to a contracted price for delivery next fall or next summer when we harvest the winter wheat of likely in excess of $4 a bushel. So we’re looking at prices right now that are very high, historically. It’s rare that we see $4 wheat, and especially this far in advance of harvest.” SDSU Extension Risk and Business Management Specialist Matt Diersen adds that the higher prices will very likely offset higher production costs, resulting in higher profit levels for winter wheat. “That’s making the crop attractive to both the existing producers and producers who are considering planting and raising winter wheat for the first time.” It’s important that producers match their insurance and marketing strategies, Diersen added. He noted that only producers in South Dakota’s traditional winter wheat production area – roughly the southwestern two-thirds of South Dakota counties – can insure their crop going into winter. Producers in other counties can insure their crop under spring wheat coverage once winter is over and it’s clear that they have a stand. “When you sit down and buy your crop insurance, if you’re in that winter wheat area, it will be attractive this year to buy higher levels of coverage,” Diersen said. “The flip side of that is that while you want to be aggressive marketing your crop this year, you don’t want to market more than your insurance would prudently or adequately cover if something were to happen to the crop this winter and into next year.” May said the situation offers some pricing opportunities for wheat producers to look at either cash forward contracting, using hedge-to-arrive contracts, simple hedging, or put options. However, producers in those counties which can’t insure winter wheat now might want to look at strategies for pricing that do not necessarily require delivery, May said, at least through the winter months. That will offer some protection if producers are concerned that they may end up losing the crop to winterkill and not having sufficient bushels to deliver against a contract when harvest comes. May adds that producers will want to pay attention to their Actual Production History and the number of bushels that are actually insured. “While we always tell folks they can be aggressive in forward-pricing with a revenue product covering their crop, they do need to be careful to perhaps not market above that insurable level in the event that they would have a complete crop failure.” May adds that although current interest in winter wheat could result in higher production over the long run, this still is a good marketing opportunity. “There is a potential risk for lower prices as we get further on into the growing season next year. If we do indeed have a lot more acres of winter wheat planted, there certainly is a possibility we’ll see points in time where prices could be depressed,” he said. “But right now the fundamentals are basically telling us, I think, that we have very low supplies of wheat both domestically and worldwide and that we do certainly have opportunities right now to price new crop wheat.” Contact: |
