Uncertain Harvest Requires Solid Marketing Strategy, Kim Anderson SaysTue, 13 May 2014 17:44:09 CDT
Harvest season is descending upon the Southern Plains and it is still very much uncertain how much wheat has escaped the drought and unseasonably-late freeze unscathed. Oklahoma State University Extension Grain Marketing Specialist Kim Anderson says the markets are probably not going to react as they do during a normal harvest season. He spoke with Radio Oklahoma Network Farm Director Ron Hays at the recent Lahoma Wheat Field Day. (You can catch the full conversation by clicking on the LISTEN BAR at the bottom of this story.)
"I don't know how it could act like a normal harvest season because we're not going to know how much-or how little, if you want to put it that way-we're going to produce before we cross the scales with it. We don't know what the quality's going to be. You recall back in 2009 and 2010 when we had the poor quality wheat, the basis was $1.00 to $1.30 below the Kansas City or the KC contracts now. There's a lot of unknowns out there."
He said the disparity in the basis between the Chicago board and the Kansas City board which has been growing over the past few weeks will probably hold due to the fact the soft red winter wheat crop is in better shape than the hard red winter wheat.
Anderson said with so much uncertainty surrounding production and quality this year it can be hard for producers to develop a marketing strategy, but now might be a good time to consider it.
"If I knew I was going to harvest some wheat, I'd probably go ahead and price some and lock in this basis and lock in the board price. The odds of it going higher if it comes in below expectations, the futures could go up, but that could be offset by a lower basis depending on that quality.
"I, as a producer, would probably not forward contract or price some because I just don't know how much I'm going to deliver to the elevator and I don't want to sell more than I can bring in."
He said canola is in much the same situation, although it doesn't look as if the crop has been damaged as heavily as the wheat crop.
"The canola people tell me the canola probably hasn't been hurt as bad as the wheat has, that it is still going to come in relatively good, but it's still of unknown quality. And you watch that canola contract and prices and it's relatively stable right now so I probably wouldn't price that either."
With so much uncertainty this harvest season, Anderson said producers need to have a written marketing plan to guide their decision-making process.
"That marketing plan should be based on certain production levels. If they get half a crop, they're going to do such and such. If they get a third of a crop, they're going to do- As they cross the scales, note how much they are getting and follow a written marketing plan.
"I do like the mechanical strategies. We're going in with a relatively high price this year. I'd probably price a higher percentage at harvest than I normally do. But, you know, if we lose a crop in one of the foreign countries, the price could go up another dollar or dollar-and-a-half."
Anderson said that this will be another in a string of poor harvests that have hit some country elevators hard and he expects they will be raising their basis to cover their fixed costs with the lower amount of bushels being brought in.
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