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It is time for prices to go up

Agriculture.com Staff 03/13/2009 @ 12:04pm

Some times when we wonder why grain prices go up, the best answer is "It is time". Last week it seemed as if the news couldn't be any worse. The stock market especially seemed to have no bottom. Grain prices were in the tank. At least they held above lows made last December.

Long term seasonal charts for soybeans and corn show price improvement in most years during March and April. I attribute that move to changing psychology as the weather improves and farmers think about planting. Traders become concerned about planting problems which also supports prices. The general attitude usually improves after the February break. That seems to be happening now.

I view the next two months as a time for selling. Futures prices certainly have not gained back what was lost in previous months. Basis here in eastern Nebraska is the best it has been in a long time for old crop grain. That says we can make sales and if we want to replace with call options or futures the odds are better than at any time in the recent past. Personally I prefer to sell old crop grain in increments and forget about going long the board.

The biggest part of the price movement in the spring comes in the first three weeks of the rally. Sometimes it all comes in the first three weeks. Today we are about half way through the three week time period. Do not become complacent and anticipate that these better prices can continue until May. They may or they may not. A lot will depend on the stock market and energy prices.

On Monday of this week I put in sell orders on my first increment of old crop corn not covered by July futures. I did the same with most of the remaining small increment of soybeans that are in commercial storage. I planned to be gone for three days and did not want to miss more rally if it continued. I anticipated that I might have to change those orders if they were not filled by the time I got back. Prices were stronger than I anticipated and both sales were made. Now I need to decide where to place the next orders.

I am waiting for a basis of -.30 under July futures to roll the hedged corn into cash sales. The cash price is within a nickel of that target this week. Maybe I won’t have to wait until June to cash in those bushels. It appears that hedging with put options and then rolling into a short position in July futures to capture the carry is going to work well again this year. Last year was the worst in history for this strategy that I have been using successfully for ten years.

Basis is still very bad for new crop cash bids. That means I will be looking at hedging with futures or buying put options on new crop grain. History shows that in most years it is to the farmer's advantage to assume basis risk when pricing far ahead of harvest. That factor may vary depending on location, but in Nebraska basis on new crop bids usually gets better as harvest approaches. December corn futures today are over the $4.04 crop insurance level. November soybean futures are still more than 40 cents under, but close enough that we all need to be watching for pricing opportunities.

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