Wheat: store or deliver?

Cory Walters, University of Kentucky Ag Economist, posted the following advisory on the state's grain blog Friday on wheat marketing strategies:

Wheat producers may be asking themselves if they should store or deliver wheat and if they store should they forward price or not.

Currently, the wheat futures contract at the Chicago Board of Trade is offering a large positive carry (the difference in price between two futures contracts) for storing wheat from now into the fall. The gross return between July and December futures is 53 cents per bushel (6.23 for July and 6.76 for December) as of June 5, 2009.

The July to September carry is 28 cents per bushel. The forward price benefit of 53 cents per bushel offers positive returns to storage, thereby making storage with a futures contract (a storage hedge) for fall delivery appealing since net return to storage is positive.

To calculate net returns you should subtract variable costs to storage (this includes the interest cost of capital in the wheat), cost of insurance on wheat, and cost of shrinkage from the gross return of 53 cents. Also, any basis improvement between now and delivery would add to storage hedge returns.

-- Owen Taylor