Is wheat offering an opportunity?

What happened

Wheat futures on all three exchanges have rallied substantially this spring. July Chicago soft red winter wheat has gained over $1.80 recently, peaking at $7.20, a change of nearly 33% from the low established in early March. The July Kansas City hard red winter contract reached a nearby high of $7.46¼, rallying just over $2.00 or 37%. Minneapolis spring wheat added $1.33, reaching a high of $7.67¾ or an increase of 21%.

Tighter world supplies, weather in the southwest regions of the U.S., and continued problematic growing conditions in the Black Sea region (due to frost damage and dry weather) have provided underlying support. Additionally, world supplies from exporting countries other than Russia remain close to 15-year-low levels.

Why this is important

Markets that rally often do so for various reasons. As information becomes well known and absorbed into price, it takes more supportive news to keep prices sustaining upward momentum. Traders need confidence to buy at high prices with the belief they will move even higher.

Currently, the wheat market may be at a crossroads where it will take more supportive news to provide reasons for prices to hold recent gains. The recovery in prices this spring is impressive and is also providing an opportunity for farmers to shift risk and take advantage of good pricing levels for 2024 and 2025. As of this writing, July 2024 Chicago is trading near $7.00 while July 2025 is near $7.50. Both numbers are likely considered good prices by producers.

The same can be said for Kansas City and Minneapolis. July 2024 Kansas City is near $7.30 and July 2025 near $7.50. Minneapolis September 2024 is near $7.70 and September 2025 near $7.50.

Trying to guess price direction and movement is a challenge, as prices are always dynamic. A concern any producer has during a price rally is that the market will quickly retreat and give up significant gains. On a price rally, it seems every sale is one too many. On a price decline, it seems you can’t have sold enough. Taking a balanced approach is important, and includes an element of shifting risk while holding some ownership.

What can you do?

The first thing you can do is reward the rally with sales in 2024 and 2025. The key is to create a balance in which you shift risk on portions of your crop and leave the top side open, should prices advance.

If you have confidence in your crop, then consider forward sales. Also consider purchasing put options for the 2024 crop as a risk-shifting measure. Puts get pricey for 2025 because of the amount of time value you’re purchasing. Here, forward contracting or hedge-to-arrive contracts may make more sense, at least from a starting point.

If you are forward contracting and want coverage against sales, then consider purchasing call options or bull call spreads. The bull call spread likely makes more sense for 2025 re-ownership.

All mentioned strategies take execution, which should only be done after careful thought and consideration of the tools; which tools work best for your operation; and risk tolerance. Cost is also a consideration. Take time and discuss with your adviser what’s best for your operation.

Ultimately, the key to good marketing is to act, be disciplined by following through, and be willing to shift gears as necessary to take advantage of the market opportunities. Just as the markets are always dynamic, so should be your approach to marketing.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involves significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. Unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market adviser and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.