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Wheat producers don’t sell in the bottom third

80 percent of the sales were in the upper two-thirds of the price ranges. Approximately 67 percent of the wheat sales were in the upper half of the price ranges. About 52 percent were in the upper one-third of the price ranges

“Most farmers sell in the bottom one-third of the market.” This myth has been repeated often enough over the years that some producers believe it. But the facts tell a different story: Most producers sell in the top one-half of the market.

Dr. Wade Brorsen (also of Oklahoma State University) and I obtained wheat purchase data from three Oklahoma elevators: an elevator in southern Oklahoma, one in south central Oklahoma, and one in northern Oklahoma. The elevators provided price information for every wheat purchase from producers for a nine-year period.

The data included date, price, storage, and farm name. The prices farmers received, minus storage and interest costs, were compared to the average price if the producer had sold one bushel every business day for the marketing year (average annual price) and to the harvest prices. The daily prices were divided into thirds: top third, middle third, and bottom third.

The results showed that nearly 80 percent of the sales were in the upper two-thirds of the price ranges. Approximately 67 percent of the wheat sales were in the upper half of the price ranges. About 52 percent were in the upper one-third of the price ranges. For these producers, which we believe are representative of all producers, you could say, “most producers sell wheat in the upper one-third of the market.”

The 20 percent of sales in the bottom one-third came mostly from wheat that had been left in storage too long. Current storage cost is about four cents per bushel per month and interest cost is about 3 cents per bushel. Costs to store wheat from June to January equal about 50 cents per bushel.

The University of Illinois conducted a study (“The Performance of Market Advisory Services in Wheat” – Scott Irwin and Darrell Good) comparing the average producer wheat price received to an average price received if producers had followed the advice of market advisory services. The research was conducted for southwestern Kansas. Results showed that the actual price received by southwest Kansas wheat producers was higher than the average of the market advisory services.

The Illinois study covered a 10-year period, 1995 through 2004. If the producers had sold all the wheat at harvest, the average price received would have been 9 cents higher than the farmers actually received. The Illinois study is part of the AgMas project.

An additional lesson from this study was that selling wheat at harvest may generate a few cents per bushel more when compared to other strategies. However, if the wheat was consistently sold between April 1 and Jan. 1, the average price received from most strategies was not significantly different. “It did not make any significant difference when wheat was sold as long as it was sold by Jan. 1.”

The one strategy that normally does not work is leaving wheat in storage and hedging the wheat using the Kansas City Board of Trade December wheat contract to protect the price (storage hedge). Over time, the storage hedge produced a significantly lower average price than other marketing strategies that had all the wheat sold by Jan. 1.

Other research studies support the opinion that wheat producers do a relatively good job of selling their wheat. Research also shows that “of all management tasks, producers think that marketing is one of their weakest points.” This is probably not the case.

Research indicates that producers should develop marketing strategies that fit, timing income when it is needed. The limiting factor is that the wheat should be sold before Jan. 1, after harvest. The research also show that, over time, selling at harvest tends to be the simplest way to sell wheat and produces an average price that is at or near the top average for any strategy.

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