As Nebraska winter wheat growers head to the field, the markets continue to move in their favor and marketing the 2011 crop should be on their minds. The cash market for winter wheat to be delivered in July 2011 has remained above $5.50 per bushel for the past month. For those producers interested in forward contracting winter wheat and carrying proper crop revenue insurance coverage, this may be a good time to contact the local elevator.
The 2010 UNL Crop Budgets show cash cost for wheat production to be near $2.25 per bushel for both irrigated and dryland production. Total costs for irrigated winter wheat are near $3.40 per bushel, and dryland costs are between $3.50 and $4.00 per bushel depending on the production system. Armed with this information, the $5.50 and higher prices that we see right now allow farmers to lock in a reasonable profit for the 2011 crop prior to putting it in the ground.
Looking back over the past ten years, this will be the fifth year that the September price is above total cost of production. Of the previous four years that had profitable prices at harvest, only three of them were above total costs at harvest. In addition, another year, while above total cost, was below the planting time price at harvest. In other words, over the past ten years only twice has the price at harvest exceeded the price at planting AND been higher than the total cost of production. Knowing this, it may be a great time to look at marketing some winter wheat for delivery in 2011. Selling as much as 20% - 30% of the expected crop would not be out of reason in this market.
With the present wide basis levels, futures contracts may not be as attractive as they have been in previous years. The basis risk in the market today is a challenge for the traditional hedge until some stability in basis relationships returns. Cash forward contracts appear to be more attractive for producers than they traditionally have been.
Much of the current price strength is based on poor crop expectations in other production areas in the rest of the world and general weakness of the dollar. With recent increases in price based on export potential, the price movement either upward or downward is going to be tenuous for the next year. Marketing small percentages of the next crop over time may be a good strategy for those farms that are comfortable with marketing ahead of harvest.
Extension Ag Economics Research Analyst
University of Nebraska–Lincoln