NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
February 24, 2000
George Flaskerud, Extension Crops Economist
NDSU Extension Service
Spring wheat futures in Minneapolis have been at a premium to wheat futures in Chicago during August for the last three years. Is that premium at risk?
Big winter wheat crops for the last three years and mediocre spring wheat crops have been responsible for the strong premium. The average premium in August was 66 cents in 1997, 71 cents in 1998 and 62 cents in 1999. The monthly average premium has been in the range of 60 to 85 cents per bushel since April 1997.
The premium, or spread, was calculated as the nearby futures price in Minneapolis for spring wheat minus the nearby futures price in Chicago for wheat. Nearby refers to the nearest futures price beyond the current month. An average premium for each month was derived.
An August 2000 premium of 35 cents or less is likely if 1991 yields are repeated. In 1991, the average winter wheat yield fell sharply below the spring wheat yield, just the opposite of 1997-1999 yields. The result was a September futures price in Minneapolis that was at a 12-cent discount instead of a premium to the Chicago futures price. This was the worst August spread during the last 12 years.
The August projection of 35 cents is based on relationships identified in a 1999 study by Rati Shavgulidze and Demcey Johnson in NDSU's department of agricultural economics. A major difference between 1991 and 2000 is the premium that prevailed prior to harvest. The average premium during January was 63 cents in 2000, versus 2 cents in 1991. Supply-demand conditions are tighter for spring wheat than for winter wheat this year than they were in 1991.
Current futures prices reflect the uncertainty regarding crop size. On Feb. 17, the September futures price in Minneapolis was at a 54-cent premium to Chicago's price. A continuation of large winter wheat yields and mediocre spring wheat yields would return the September premium to the higher level observed during the last three years.
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Source: George Flaskerud (701) 231-7377
Editor: Dean Hulse (701) 231-6136