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Marketing old-crop in July makes sense, analyst says

Agriculture.com Staff 07/06/2006 @ 8:25am

Steve Johnson, Farm Management Field Specialist with Iowa State University Extension, wrote this special marketing story exclusively for Agriculture Online on Thursday. -------------------------------------------------------------------------------------------

Marketing old crop corn and soybeans should be a priority for producers in July. While weather forecasts may determine short-term futures price movement, basis bids have improved at some Iowa processors in the past week.

Tight farmer holding is the main cause. While the board rallied 15 cents since the June 30th reports, processor basis narrowed or at least remained flat since rolling to the nearby month of September futures for corn and August futures for soybeans, respectively.

Some farmers may be losing confidence to market old crop bushels, and have frozen on new crop sales with these drier and hotter forecasts. With record old crop soybeans on-hand and large corn ending stocks, finding a home for old crop bushels should occur sooner rather than later.

With new crops maturing rapidly, basis is expected to widen into August as a large number of producers get caught with old crop bushels and meager sales for new crop. Failure to merchandise old crop grain in a timely fashion could leave old and new crop bushels available to the market by early September. Some old crop bushels might actually get delivered to town and stored commercially, thus challenging corn and soybean commercial storage this fall.

If a producer truly believes that higher futures prices are coming, they should at least fix the basis for bushels they plan to deliver later in July and August. This still leaves futures price open and a chance to capture the entire futures price move. However, the risk of lower futures price still remains.

Another strategy is to sell old crop, but create a minimum price contract where bushels are replaced with a call option. This allows for the old crop bushels to get moved, but leaves the futures price up side open again. The only cost is for the call option premium and a small brokerage fee and is subtracted from the cash sale of bushels.

If you're moving old crop bushels, consider committing those bushels this summer with the basis fixed or at least leave a basis bid with your merchandiser. Should futures price begin to decline, there's lot of old crop bushels that will need to be priced. The idea of simply trading on-farm storage space for commercial storage space later this summer or early fall could prove expensive.

Steve Johnson, Farm Management Field Specialist with Iowa State University Extension, wrote this special marketing story exclusively for Agriculture Online on Thursday. -------------------------------------------------------------------------------------------

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