Wheat harvest is here, market watchers — and all of a sudden, it seemed. Several days over 100 degrees finished the ripening quicker than many were ready.
Unsurprisingly, test weights are intact and above 60 pounds per bushel. Protein content is the harder variable to predict and has been all over the board. We’ve heard from below 8% to above 16%. Daily averages for nearby terminals were around 11.30% protein in Enid, but sample numbers still remain small. Given ideal filling periods in many areas leading to high test weights, we’re expecting proteins will be in the low 11’s on average. Southern Oklahoma likely will have higher protein content yet again due to more stress. We are expecting yields to be 50 bushels per acre and above, especially given higher test weights. However, few full fields have been completed in order to get representative samples as yet.
Winter wheat conditions improved on Monday to 50% good-to-excellent from 48% last week. Spring wheat conditions dipped by another 2% to 38% good-to-excellent this past week as extreme heat and dryness continues to impact the crop outlook. Precipitation in the Dakotas, Nebraska and heading toward the I-states weighed on markets Friday, but hotter, dryer weather remaining in the extended forecast will keep a weather premium active in the grain markets in the coming weeks.
December new crop corn closed the week just below $6.10, while November soybeans dropped to $14.38 and July spring wheat to $7.64. July new crop KC wheat closed Friday at $6.38 after the week’s lows at $6.21. If you have July put options protecting your price risk, be reminded they expire June 25. Therefore, if you want coverage beyond that level, you will need to extend coverage to the September or December options, depending on how long you plan to hold unsold grain. As we have discussed in the past several years, the strategy of selling your physical wheat at harvest and replacing part or all of your these bushels with KC wheat call options is an effective means to manage basis exposure while also accessing the capital that is tied up in holding $6.50 per bushel wheat that could be spent on paying down loans to stop interest, fertilizer and chemical expenses for summer crops, or prebooking fertilizer for next year.
Regarding basis, there is no way to “hedge” basis on delivered grain unless you sell your grain. Therefore, even if you have the futures price protected on wheat being held in an elevator, you are exposed on the basis with no way to manage that risk. If the futures and basis remain the same, holding grain is costing you money every month not to mention the risk of a declining basis. While basis may in some years improve after you’ve delivered grain, it is less than the market is paying. That is how elevators make money and why farmers are building more on-farm storage. Of course, if the futures market moves higher, you will receive that higher price on grain held at an elevator, but the basis may, in part, take away from this. Selling your wheat manages your risk on the basis and buying call options, you still have the upside potential on the futures price without the risk of basis and also being paid on the full value of the wheat in storage that can be used to pay for other expenses.
This same strategy applies to any grains you’re delivering to an elevator and storing awaiting higher prices. There is particular risk on milo basis this coming year, so be cautious in how you manage that so that assumptions at planting don’t disappear by harvest.
I am expecting harvest pressure in KC wheat this next week as more combines are moving and yield data is known. We have been trading this $6.30 range on July KC wheat for 10 days, but I do not expect that to last. Yields and weather up north likely will weigh on markets in the near term. I had several producers adding put options this week and advised them to go to the September contract that gives you time to finish harvest, organize tickets and then make a marketing decision.
If you are looking for a double-crop, consider sesame through Enterprise Grain Co. The founder and CEO of Equinom from Israel visited us in Kremlin this week and made a significant commitment to earn the trust and acres of producers. If you plant Equinom sesame through Enterprise Grain and have a crop failure for any reason, you are not responsible for the cost of the seed. If you plant 500 acres or more and yield less than 300 pounds per acre for any reason, you get free seed next year. Seed financing also is available through sesame harvest. If you are interested in contracting sesame acres in Oklahoma or southern Kansas, call Enterprise Grain at (580) 874-2286. We are aggressively contracting double-crop acres and have delivery points at Enterprise Grain in Kremlin and Goltry as well as at CHS in Kingfisher.
The USDA’s monthly WASDE and Crop Production reports this Thursday were mixed. Markets traded higher before the 11 a.m. release, only to slip after numbers were further considered. Old and new crop U.S. ending stocks for corn and wheat both came in below average trade guesses while higher for soybeans. All winter wheat production was in line with average trade guesses, but above USDA’s previous month estimates. For hard red winter wheat, the USDA raised production 40 million bushels above last month and 12 million bushels higher than average trade guesses. World ending stocks were slightly higher than average trade guesses for corn, soybeans and wheat for 2021-22. China imports for next year were held the same with 26.0 million metric tons for corn and 103.0 MMT for soybeans. Brazil corn production was slightly higher than expectations, but 3.5 MMT lower than USDA’s previous estimates.
Easing grains gave life to the cattle market this week. Feeder and live cattle both surged Friday. August feeders touched a high at the 20-day moving average at $151.90 before closing up $2.775 on the day at $151.175. Should grains start out next week under pressure, we could possibly see $152.20 in this market, but feel these areas are worth protecting if you have exposure. August fats pushed through the 20-, 50- and 100-day moving averages Friday and managed to close above $120.00 for the first time since May 25.
I offer both futures and options on the CME as well as Livestock Risk Protection through crop insurance. As I’ve outlined before, if you are looking for a way to lock in grain futures while keeping delivery points open until you can find the best basis bids, there are several risk management and marketing programs for wheat, corn, milo and soybeans to consider that will enhance your marketing efforts. This is a very creative solution to lock in futures without having to pay margin calls, but also maintaining the freedom to negotiate basis with delivery points once you are ready. If you’re ready to trade commodity markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss strategies to pursue your objectives. Self-trading accounts are also available. It is never too late to start and there is no operation too small to get a risk management and marketing plan in place.
Wishing everyone a successful trading week.
Sidwell is a Series 3 licensed commodity futures broker and principal of Sidwell Strategies. He can be reached at (580) 232-2272 or at email@example.com. Futures and options trading involves the risk of loss and may not be suitable for all investors. Review full disclaimer at http://www.sidwellstrategies.com/disclaimer.