NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
August 12, 1999
George Flaskerud, Extension Crops Economist
NDSU Extension Service
Wheat, corn and soybean prices have made substantial gains since early July due to hot weather in July and dry conditions in many areas. This price rally has presented marketing opportunities.
Take the loan deficiency payment and sell the wheat using a hedge-to-arrive (HTA) elevator contract or futures hedge. Target the Minneapolis December spring wheat futures contract for selling wheat with 14 percent or better protein and the May contract for lower-protein wheats. Fixing the futures price in the deferred contract months is preferred to a cash sale in August because of a weak basis and because the distant futures contracts offer better pricing opportunities. In addition, protein premiums are likely to strengthen this fall and protein discounts may decrease by next spring.
Scale up wheat sales using the Minneapolis December spring wheat futures contract as a guide. Based on crop prospects as of Aug. 9, I would target $3.50 to $3.90 for making sales. Two-thirds of the crop should be sold by $3.70. The December contract closed at $3.56 on Aug. 9.
The North Dakota wheat quality tour came up with a yield of 30.5 bushels per acre, about a half-bushel less than USDA projected in July. The tour was completed Aug. 5, and crop conditions have continued to decline. For the week ending Aug. 8, the good-excellent rating was 62 percent versus 66 percent the previous week.
Minneapolis spring wheat futures should continue to gain on Chicago wheat futures. The September futures contract was at a premium of 63 cents for spring wheat in Minneapolis over Chicago on Aug. 9. Historical price relationships would suggest a spread of about 68 cents for current fundamentals.
A head-and-shoulders bottom formation on the Chicago December wheat futures chart suggests a short-run objective of about $3.05. A gap in the chart also suggests support at about $2.80. The December contract closed at $2.97 on Aug. 9.
Storage of durum should be profitable, especially if it is of good quality. The tour group came up with a yield of 23.2 bushels per acre, which is 6.8 bushels per acre less than USDA projected for North Dakota in July. Further, the condition rating for durum in North Dakota declined to 52 percent good-excellent for the week ending Aug. 8, down from 60 percent the previous week. The size and quality of this year's durum crop point to higher prices.
Corn storage hedges also look profitable because of the weak harvest basis and stronger distant futures contract prices. An analysis of spreads in the futures market, basis and storage costs suggests that the July futures contract be used for making sales in HTA elevator contracts or the futures market and that delivery be planned for June.
I would plan sales in the July contract but use the December futures contract as a decision-making guide for now. December futures prices in the range of $2.35 to $2.80 would be relevant targets based on crop prospects as of Aug. 9. Getting two-thirds sold by $2.50 may be warranted. The December futures contract closed at $2.36 on Aug. 9.
The corn crop would need to show signs of further deterioration for prices to reach the upper end of the price range. Sixty percent of the crop was rated good-excellent as of Aug. 8, down from 63 percent the previous week.
Private forecasts placed corn production at about 9.25 billion bushels as of early August. Given USDA's total use projections in July, a stocks-use ratio of .17 would be expected. In the past, such a ratio would have matched a December futures price of $2.25 to $2.40 at harvest.
The nearby basis at Hunter, N.D., averaged 71 cents under December futures during October 1998. By June, the basis had strengthened to 44 cents under July futures.
Barley prices have stagnated in the midst of harvest. Some strength would be expected, given the move in corn prices. Strength may not materialize until harvest has been largely completed. Storage may be necessary into November, the month when barley prices tend to reach a fall peak. At least a 20- to 25-cent improvement in feed and malting barley prices off harvest lows would be expected using last year as a guide.
An analysis of soybean markets indicates that cash forward contracts for delivery off the combine may be the best alternative. Distant futures prices and a possible small basis improvement offer meager returns to storage. Using the November futures contract as a guide, futures prices in the range of $5.10 to $5.70 would be reasonable targets based on crop prospects as of Aug. 9. Consider bringing sales up to the two-thirds level by $5.30. The November futures contract closed at $4.88 on Aug. 9.
As in corn, the soybean crop would need to show signs of further deterioration for prices to reach the upper end of the price range. Fifty-four percent of the crop was rated good-excellent as of Aug. 8, down from 56 percent the previous week.
Private forecasts placed soybean production at about 2.85 billion bushels as of early August. Given USDA's total use projections in July, a stocks-use ratio of .184 would be expected. In the past, such a ratio would have matched a November futures price of $5.25 to $5.75 at harvest. Market reports as of Aug. 9 revealed that a number of analysts are expecting November futures prices below $5 at harvest.
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NDSU Agriculture Communication
Source: George Flaskerud (701) 231-7377
Editor: Dean Hulse (701) 231-6136