June 22, 2021
Taking advantage of high wheat prices is easy. Sell the wheat in the cash market. Another way to take advantage of high prices is to use futures contracts or futures option contracts. Taking advantage of high prices does not have to be difficult.
What is difficult is determining if a price is a “high” price. In my opinion, the current wheat prices of $6.30 (Medford) and $6.38 (Perryton) are relatively high prices (Table 1).
Another question is, “Is the price the high price for a specific marketing year (June through May)?” Both time periods (2009/10 through 2020/21 or a given marketing year) are important. The marketing-year question may be the most important and the hardest to determine.
At this writing, cash wheat prices are about $6.30. Since June 2009, the highest monthly average price (adjusted for storage) was $8.51 (September 2012). The lowest monthly average price (adjusted) was $2.73 (October 2016). The average price for the period June 2009 through May 2020 was $5.15. The $6.30 price is $1.15 (23%) above the average price. The average June through August price (harvest months) for the 2009 through 2020 time period was $5.42.
In my opinion, compared to June 2009 through May 2021 prices, $6.30 is a relatively high price. But 27% of the wheat prices during the June 2009 through May 2021 period were above $6.30.
From a marketing-year perspective, $6.30 may not be a relatively high price. In June 2012, the average wheat price was $6.48. Prices went up from $6.48 to peak at $8.51 (September 2012). It was December 2013 before wheat prices went below $6.48. The 2012/13 marketing-year price movements imply that $6.30 was not a relatively high price. Table 1 shows that between September 2010 and August 2014, $6.30 would have been a relatively low price.
Between August 2014 and June 2021, $6.30 would have been a high price. In 2016, $3.91 was the high price. In 2017, $4.57 was the high price. In 2018, $5.58 was the high price. In 2019, $4.59 was the high price. In 2020, $4.26 was a relatively low price.
Table 1 may indicate that if wheat prices are above $7 (2011, 2013, and 2014), the odds are that the prices are near the top. A price above $8.00 is a “no brainer.”
Research shows that the best price predictor is today’s price. Fifty percent of the time, tomorrow’s price will be higher and 50% of the time tomorrow’s price will be lower than today’s price.
During the 2021/22 wheat marketing year, there is a 50/50 chance that wheat prices will be higher than $6.30.
A sell or store decision still needs to be made. Collect all the information needed to make the decision (current price, best guess about future prices, cost of production, financial needs, and other factors) and plan (don’t sell until tomorrow). If you wake up at night worrying about lower prices, sell some wheat. If you wake up at night worrying about not having the opportunity for higher prices, store the wheat. If you sleep well, follow the plan.
Another alternative is to write down three dates and price targets to sell wheat and have the discipline to follow the plan. Focus on things you can control rather than factors you can’t control.
My conclusion is that $6.30 is a relatively high (not necessarily the highest) Oklahoma/Texas wheat price. Time will tell if I am right or wrong.
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