What Influences When Producers Sell Wheat?
Phil Kenkel
Bill Fitzwater Cooperative Chair
How do you forecast your wheat storage revenue? If you are like most cooperatives you start
with the bushels received and assume that producers sell their wheat using a similar pattern to
last year. That raises an interesting question of what influences producers’ yearly marketing
pattern. I examined 10 years of monthly wheat marketing data from the Oklahoma Agricultural
Statistics. The basic pattern is fairly stable. On average, producers sell 27% of their wheat at
harvest leaving 73% in storage. By the end of September they have sold 60% of the crop
implying that 54% of the wheat that went into storage has been marketed. By the end of
December 76% of the total crop or around two thirds of the amount placed in storage has been
marketed.
There is variation in producer’s pattern of storage. While the average amount sold at harvest is
27%, producers sold only 17% at harvest in 2003 and sold 37% at harvest in 2008. Factors that
would be expected to influence market timing include the size of the crop and the price level.
Ignoring the 2009 crop where the marketing pattern is not yet established, we can consider the
2002, 2006 and 2007 crops where production was 20% below the ten year average. In all three
years producers sold a higher proportion at harvest. In two of the three years the cumulative
marketing pattern exceeded the 10 year average. The largest crop in the series was 2003 when
production was almost 40% above average. Producers sold less at harvest and continued to
market at a slower rate through the year. This suggests that producers sell a short crop more
rapidly, perhaps to meet cash flow needs. They hold on to a large crop longer, perhaps to shift
taxable income.
With respect to the 5 year average, 1999 and 2000 were the lowest wheat price years with prices
20% below the 5 year average. The seasonal pattern of marketing in those years exactly tracked
the 10 year average. Prices were highest above the 5 year average for the 2008 crop. Despite the
common stories about producers missing the market by holding out for even higher prices,
producers sold a higher than average portion at harvest and continued to sell wheat sooner during
the high price years.
It appears that producers sell more wheat early in a short production year and when prices are
above average. Grain cooperatives take a double hit in short crop years since there is less
handling income and the crop that is received is stored for a shorter period of time. A bumper
crop delays marketing while low prices have little effect. Basing your storage budget on the
previous year works well in most years but may overestimate the percent stored in low
production or high price years. 2009 is a low production year following a high price year, so a
budget based on last year’s pattern may work well. Just don’t forget that the pattern will change
if we ever have normal production and normal prices.
11-2-2009