We’ve had the question come in from a few producers who didn’t get much crop planted whether or not to carry wheat over into the new crop year. The temptation seems to be related to two questions. Could the wheat market turn bullish due to the smaller western Canadian crop? And if I’m not going to harvest a crop is this a good way to stay in the game?
The right answer to this question is an individual consideration, not one that anyone can make a broad recommendation about. Mostly it depends on the grade involved what risk producers would be taking on, but upside potential in the wheat market overall is also important to consider.
Suppose the farm has a No. 2 CWRS 15.5% protein wheat in the bin and hasn’t committed it yet. It could be delivered into the old-crop pool since there’s a 100% call, or it could be flipped into the 2010/11 pool, for which the Board will charge a $3/t roll fee.
Today the spread between a 1-13.5% and a 2-15.5% in the 2009/10 initial payments is $35.05/t. You lock in that protein premium in delivering and getting paid in the current crop year. Protein is tight in world wheat markets currently, which is why this is historically wide.
In the 2010/11 PRO, it looks like they’re only valuing the premium for this grade at $18/t ($218-214=$4 discount for a #2, plus $11/t*2 for 15.5% protein).
Certainly the spread in the PRO could change by the time it becomes a final payment late in 2011, but today they’d have to improve it by $20/t to make this worthwhile (the inverse in the premium plus your $3/t roll fee). Not to mention the inverse in the benchmark grade would have to be made up for too. Today it’s $17/t ($235 in the old-crop PRO vs. 218 in the new-crop PRO for 1-13.5%).
You would have to be very bullish the wheat market and the protein premiums from current levels in order to justify gambling $37/t of the value of high-protein wheat today, and be prepared to pay all the carry and forfeit a lot of cash flow to do it.