When developing a post-harvest marketing plan, your objective should be to obtain a higher price than the cash price offered at harvest. This article will discuss five strategies to post-harvest market winter wheat.

We are going to assume winter wheat harvest in Nebraska begins around July 1. The futures price of wheat on July 3, 2017 was $5.41/bu.

Figure 1 illustrates the 20-year average winter wheat futures price pattern, and upper and lower limit of the expected price change from July 1. The 20-year average shows winter wheat prices are traditionally lowest at harvest and then increase about 8% above the July 1 price. However, the upper and lower price expectation limits illustrate that wheat prices are highly volatile. These upper and lower limits illustrate that storing unpriced wheat is risky. This is especially true after August, when price changes from July 1 can be 20% higher or lower than the average expectation.

If you are not interested in a minimum price contract or a put option and you can store winter wheat on the farm, another opportunity to mitigate price risk is to enter a cash-forward contract or a hedge-to-arrive (HTA) contract. These contracts allow you to price grain today for delivery at a later date. Selecting between these contracts depends on your expectation of local basis.

A cash-forward contract should be used when you believe that basis will be stagnant or weaken. This contract simply establishes the cash price of wheat to be delivered in a future month.

An HTA contract establishes a futures price at the time the contract is signed and allows you to establish the basis at a later date. This contract should be used when you expect basis to improve.

Both a cash-forward contract and an HTA contract guarantee delivery of grain at a future date to your local elevator. To evaluate the profitability of these options, you’ll need to assess the carry charge. A carrying charge is the difference between two futures contracts; it is also called a spread.

Table 1 shows the 20-year average carrying charge between Kansas City winter wheat contracts from July until December. Usually, when the July contract (KWN) is the nearby contract (May 15- Jul. 14), there is a $0.08/bu difference between the July and September (KWU) contract. In other words, on average, the grain buyer will pay you $0.08 to store your winter wheat until the September delivery period. However, you will accrue additional storage expense; in this example the charges would be for an extra two months (July 1 to September 1). If your storage expense is less than the carrying charge, it may be profitable for you to enter a cash-forward or HTA contract.

Table 2 shows that current carrying charges are higher than the 20-year average. Farmers willing to store winter wheat on farm until September have the opportunity to gain a premium of $0.17/bu minus the additional storage expense. Those able to store until December could obtain a $0.42/bu premium and those waiting until Mrch could get $0.56/bu, but they also will have incurred more storage expenses.