Industrial Harvest

The latest on the Board by sarah kavage
August 6, 2010, 7:48 am
Filed under: Commodities trading

Just a quick post to mention what the wheat markets are doing lately.  Going up, up and up – December wheat was over $8 a bushel yesterday in Chicago, due to drought in Russia, crop failures and subsequent wheat export ban.  This all makes high American wheat prices.  Also makes me wish I’d stayed in the futures market…one little taste & you get greedy.

The Bloomberg article mentions potentially higher prices for foodstuffs as a result of this price spike almost as an afterthought, but of course, price increases are a major concern in the developing world.  At the same time, I’m not sure how much high prices will benefit farmers.  From what I understand, most wheat farmers sell their wheat right after harvest, and since harvest was in July, many of them would have sold their crops already.  Although July wheat prices weren’t bad, it certainly wasn’t $8 a bushel.  Anyone out there who knows more care to comment?

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So, thanks to a trader I met at Saturday’s reception, I now have an answer to my question about how farmers can benefit from the recent price runup when they have already sold their crops. As it turns out, when farmers deliver wheat to the grain elevator after harvest, they only sell a portion of it – enough to cover their debts – knowing that prices will rise as the year goes on. The rest of the wheat is put in “storage” at the elevator. The farmer pays storage fees to the elevator, and then will sell off the rest of the wheat bit by bit as the price starts to go up. You hope that the price goes up enough to cover storage costs and make you a little bit of money…the trick is timing it right (and getting a little bit lucky). Now that wheat prices appear to have peaked, farmers that sold just a few days ago are sitting pretty.

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