November 8, 2002

Market Advisor: Short-Term Wheat Storage May Be Attractive in Some Areas

By George Flaskerud, Crops Economist
NDSU Extension Service

Recent market action, interest rates and crop conditions may favor short-term storage of wheat into November in some areas. These factors need to be carefully monitored as decisions to sell or store are being made.

A key factor is the basis. In some areas, the basis for new crop spring wheat has weakened by 15 cents in recent weeks making several months of storage look more attractive. Until a few weeks ago, the basis generally appeared to be tracking the 10-year Olympic average (average after highs and lows are removed). A recovery may be possible after harvest for several reasons.

An annual interest rate of only 3 percent for commodity loans has been set for the month of August by the Commodity Credit Corporation. This low interest rate makes storage reasonable once the grain is in the bin, assuming it is properly managed. Remember, however, there is still the substantial in/out cost of storage. Producers can take advantage of the low interest rate by securing a commodity loan as soon as a bin has been filled. A stronger basis is usually required to entice the movement of grain after harvest.

Crop conditions in major production areas continue to deteriorate and support prices. USDA’s Weekly Crop Progress Report Aug. 4 indicated that 32 percent of the spring wheat was rated good/excellent versus 36 percent the week before and 58 percent a year ago. Montana slipped to 26 percent from 35 percent the previous week.

Corn and soybeans are probably the most sensitive to weather at this point, and the national ratings continue to slip for them too. Dry conditions continue to persist in Canada as well. In addition, yield prospects are reported to be deteriorating in Australia, which begins its wheat harvest in October.

The deteriorating conditions in Montana should help the basis, particularly in the western half of North Dakota. The situation in Australia may not be factored into the market and may support exports and prices into the fall.

The outlook for corn and soybeans is very tenuous. Continued deterioration could lead to generally stronger markets into November. On the other hand, better-than-expected crops could put a damper on the market overall, in which case the highs may have already occurred.

Harvest sales for spring wheat still look attractive where an average or better basis can be achieved. For the balance of spring wheat and for durum, October-December may be a better time-frame for sales. As always, options are the least risky way to gamble on the weather.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu