Evaluation of marketing strategies for the last 29 years (1986 through 2014) implies that the cardinal sins for selling wheat are to sell wheat after January 1 each year, to put wheat in storage and cover price risk with KC December put option contracts, or to establish storage hedges. Just about any other strategy works relatively well.

Twenty-nine years of market prices, storage cost, and interest costs were used to evaluate the average price received if one of nine different strategies were used. The assumption was that wheat would be sold exactly the same way every year. Storage and interest costs were subtracted from the price received (Net Price).

The strategies evaluated were: sell all wheat at harvest (Sell 6/20); sell all wheat on October 15 (Net 10/15); sell all wheat on November 15 (Net 11/15); sell all wheat on December 15 (Net 12/15); sell wheat in one-thirds on June 15, October 15, and November 15 (Sell June, Oct, Dec); sell wheat in one-thirds on June 15, October 15, and December 15 (Sell June, Oct, Dec); sell all wheat on June 20 and buy KC Call Option contracts (Sell 6/20 Buy  @ $ Dec Call); store wheat and buy  “at-the-money KC December put option contracts (not shown), and establish a storage hedge (not shown). The results are shown in Table 1.

Prices and storage cost were for Kingfisher County, Oklahoma. Commercial storage costs were used and subtracted from the price received. For example, if the storage and interest costs were 6 cents per bushel per month and wheat was sold on November 15 for $6.50, the net price received would be $6.20 ($6.50 – (5 mo. x $0.06)).

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Storing wheat and protecting the price by selling KC December futures contracts or by buying KC December put option contracts resulted in significantly lower net prices than the other strategies. This strategy is probably not recommended.

Note that the average prices for the strategies included in Table 1 are not significantly different from each other. This implies that if a different date (i.e. June 15, October 20, or any other date) would have been used, the ranking of the strategies may have changed.

The results shown in Table 1 include the average prices received for each strategy for the periods 1986 through 2014 (29-years); 2005 through 2104 (10-years); and 2010 through 2014 (5-years). The 29-year average prices ranged from $3.98 (Net 11/15) to $4.08 (Sell 6/20Buy @ $ Dec Call). The10-year price spread was from $5.75 (Net 10/15) to $6.03 (Sell 6/20 Buy @ $ Call).The 5-year price spread was from $6.51 (Sell 6/20) to $6.73 (Sell 10/15).

The results show that the strategy with the highest average net price was to sell wheat June 20 and then buy KC December at-the-money call option contracts. The calls were then sold on November 15 each year. In reality, this strategy could be modified, at harvest, by covering two-thirds of the wheat produced with call options and then selling one-half of the calls in the September/October time period and one-half in November. One problem with the call option strategy is that IRS considers owning call options as speculation.

Of the 29 years, selling wheat at harvest (Sell 6/20) was the “best” strategy 12 times. Selling wheat in October produced the highest net price six times; selling in November produced the highest net price two times; selling in December was the highest net price four times; selling in one-thirds (June, Oct, and Dec) was the highest  zero times; and selling and buying call options zero times.

The bottom line is the way you should sell the 2015 wheat crop is any way that makes you comfortable. Cash-only strategies may be simpler for tax purposes. The odds are against storage hedges and put option contracts.  

Table 1