WHEAT SCOOPS: Selling wheat and sleeping at night

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Prices are variable and unpredictable, so having a management strategy is important.

It often appears that after selling, prices increase. Or, after buying, prices decrease. Worrying about this phenomenon often results in loss of sleep, and loss of sleep increases the odds that costly mistakes will be made in other areas. 

One way to solve the sleep problem is to understand price risk and develop strategies to manage it. Waking up at 2 a.m. and being able to go back to sleep is important to the success of a farm business. 

Prices are variable and unpredictable (Figure 1 and Table 1). For the first two-thirds of the 2021 Oklahoma/Texas wheat harvest (June and July), wheat prices averaged $6.08, and the price range was between $5.59 and $6.50 (91 cents).  

Figure 1. Medford, Oklahoma, daily wheat prices: June 1 through October 13, 2021.

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As the harvest progressed, prices increased and got more volatile. August and September wheat prices averaged $6.76. The price range was between $6.46 and $6.97. 

During June 2021, the highest one-day price increase was 32 cents. The largest one-day price decline was 30 cents. In July, the highest one-day price increase was 21 cents, and the largest one-day decrease was 30 cents.  

Prices continued to be volatile in August and September with the largest daily price increase at 31 cents and the largest daily price decline at 22 cents.  

See, COTTON SPIN: October cotton supply/demand picture shows mixed bag

If wheat had been sold on a single day between June 1 and October 13, 2021, the price received could have been as low as $5.59 or as high as $7.19. The price differential, from low price to high price, was $1.60. 

A discussion of developing a selling strategy that supports sleep must start with the fact that prices can’t be predicted. Research shows that the best indicator of tomorrow’s (next month’s) price is today’s price. At the end of each day, there is a 50% chance that prices will increase and a 50% chance that prices will decrease. 

Figure 1. Medford, Oklahoma, daily wheat prices: June 1 through October 13, 2021.  

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Research also shows that wheat should be staggered into the market over time. A review of prices starting June 2011 and ending May 2021 indicates that Oklahoma and Texas prices (after subtracting storage costs) tend to be the highest in June, July and August. This indicates that selling wheat in thirds in June, July and August should, over time, produce the highest average price when compared with selling in any of the other nine months.  

Wheat prices (Figure 1) show that dividing sells into thirds may be sufficient to produce an average price. For example, selling 2021 harvested wheat on June 21 (first third of wheat harvested), July 15, and Aug. 15 (mid-months) would produce an average price of $6.37 ($5.84, $6.13, $7.12). The average June through August price was $6.34. 

There are other selling strategies that will work to generate an average price. Four things to know and remember are prices can’t be predicted, prices will move up or down 20 to 30 cents in a given day, the average daily price change is plus or minus 10 cents, and a written selling strategy will improve the odds of getting the average price. 

Is there a guarantee that you won’t wake up at 2 a.m. in a panic because you sold or didn’t sell your wheat? No! However, knowing the market and having a strategy will increase the odds that you can get back to sleep without counting sheep. 

 

TAGS: Outlook
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