Pricing Wheat

[edbaker]

I was wondering if anyone had any opinions on whether or not we should sell our wheat in this crop year or defer it to the new crop year.

[edbaker]

The answer to your question comes on which pooling year comes down to your level of optimism/cash flow needs. (These comments apply to wheat excluding durum and assume you still have grain to sign up on the "D" series. I should also highlight there are still 2 1/2 left to new crop with no grain company likely to offer storage tickets yet). With regards to price outlook, I think that the outlook is positive but there are no guarantees. Today's 7 to 10 cent/bu decline in US wheat futures (May 14) is a good sign of the rocky road that lies ahead. The cashflow issue comes down to the fact you will have to wait an extra 2 1/2 monts for your initial and an extra year for your final. Unless you have a zero operating loan and all your money requirements satisfied over the next six months, I would question holding back on CWB sales. The final issue is to separte delivery and pricing. The CWB provides your delivery opportunity with a strong likelihood that you will want to get your crop shipped ahead of this falls harvest. On the pricing side, you have to sort out the fact that you are a speculator who believes the market has potential to rally if you are holding back on CWB pool participation until 99/00. If you treat grain in the bin as money, is holding wheat unpriced a better investment than other alternatives (stock market, GIC's, paying down debt, replacing equipment that is getting long in the tooth with more reliable alternatives, etc.)? Would you buy KCBT/MGE/CBT wheat futures today as a speculator? Could you use some of the 98/99 initial payment you would receive to buy US wheat call options?

[edbaker]

I'm not sure what class or grade of wheat you have, but let's look at 1CWRS. 1999/2000 looks to be about $5/t less than this year when you compare the mid point of the PRO for next year with the Estimated Pool Return of March. The EPR will be updated in June. This year's spring wheat crop is far from being made in North America. So far the HRW crop in the US is about 73% good to excellent, which is weighing on prices. The USDA and others are forecasting the ending stocks to decline heading out of next year as consumption is expected to exceed production. The export pace of the US and quality of the crop next year will determine how that affects prices I think. I see some potential for protein premiums to be strong next year again, as the HRW crop will likely be low protein with all the moisture. Its too early to say for certain though. Enough analysis - let's look at other considerations... If you consider the time value of money on selling into next year, this is a rough formula to consider. 75% of the mid point of the April 1999/2000 PRO is a historic estimate of where the intial payment will be for next year. That reveals about $3.73 instore at port. Backed off to Dinsmore the initial payment is likely to be about $2.40-$2.50/bu. Total forecast return at the mid-point of the PRO at this time at Dinsmore for next year is forecast to be about $3.65 for 1CWRS below 11% protein. If you consider an 8% cost of money to you, that's a cost of about $.10/bu ($1.20/bu x .08)if you had to wait for 12 months for all your money. One other consideration for delivering in the new crop year is that the protein breaks will be in one tenth increments. If you have a protein level that is just below the .5% protein breaks of this year, there may be a couple dolars/tonne advantage to delivering into next year's pool account. You can deliver now, and under the 90 day pricing policy, not settle until after Aug 1 if you want. Check with your grain company, because they can charge you storage after the first 10 days. There may be some companies that will waive the storage. If you settle in the new crop year, it will be new crop year elevation, handling and freight that you'll pay. The grain co haven't filed their list of tariffs yet for next year with the CGC. If you take an elevator receipt, you can settle on anytime up to July 31 into this crop year, so you buy some time to see what happens with the HRW crop, with the CWB PRO's, etc. Watch the Kansas State protein levels as they harvest the HRW crop. There is a strong inverse correlation between Kansas protein levels and protein premiums. Maybe others can think of other considerations for you.

[edbaker]

I'm curious about the best marketing options for rye in 1999/2000.

[edbaker]

Using rye and marketing alternatives in the same sentence is almost a counterdiction in terms. The markets for rye are distilling, milling, feed (both export and domestic) and seed for annual forage. Here in Alberta, the milling market is only small and mainly for local processing. We are a long ways away from Minneapolis so our neighbors in Sask. and Man. mainly supply export demand from here. The export market is mainly Japan is demand for 5,000 to 8,000 t every month but the EU has pushed Canada out of this market. That leaves the distilling market (high quality/Agricore sourcing for companies like Alta. Distillers) and local feed markets the main targets for Alta. production. A lot of rye seed is also used for annual forage. Has anyone heard any new crop rye prices (either feed or higher quality).