Home / Markets / Markets Analysis / Risk premium and grain prices

Risk premium and grain prices

Agriculture.com Staff 05/29/2009 @ 8:15am

May 2009 will surely go down as a month of unusual weather here in Cass County, Nebraska. There was some snow in the winter, but nothing really big or unusual.

We went into spring somewhat short of soil moisture. However, it was not so short that the dryness was a concern. Corn planting began on time. There were a couple of rains of more than an inch while farmers were trying to get the corn planted. The unusual thing has been the number of days when there was rainfall, but the total precipitation was too little to measure. One week we had five days of rain with the total less than a quarter of an inch.

While planting soybeans on May 12, I was rained out just 14 acres short of finishing for the year. It rained so hard I was fearful of crusting. I have not had a field of soybean crust since I began planting no-till with my 'interplant' planter in 1993. However, most of the beans came through just fine and I anticipate that a nice gentle half inch of rain on Tuesday of this week will do the trick and give me a good stand everywhere.

I had to get the old 20 foot disk out of the shed for a problem unique to farming on the river bottom. It had not been used since I went to no-till. The minor flooding last June resulted in a patch of cottonwood trees too thick to leave until this fall. My first approach to eliminating them was to disc twice in opposite directions. I then raised the wheels and disced as deep as I could with the wings folded. I then tilled with the wings down a final time to smooth out the rough spots. Superficial observation reveals that I got the offending trees reduced to the point where they will not be a problem. The next day I was back with the planter to finish up the planting.

Since I cut back my farming operation to hobby size in 2004, getting the crop planted in a timely manner has not been a big concern to me. Last year I certainly saw the benefits of early planting as most of my neighbors had some soybeans that went into the ground in June. Yields were not nearly as good on those fields. Nation wide there is fear of late planting almost every year somewhere in the country. This is the fundamental situation that causes what I have always called the 'Spring High' in the corn and soybean markets.

It is very unusual to have planting delayed so much over a large area that yields are reduced significantly over a large area. However, trader psychology almost always causes prices higher than they will be at harvest because of the risk premium, or fear of reduced yields from late planting.

In the last 30 years, November soybean futures and December corn futures have dropped from June 1 until the harvest low 21 times. This is using the fall low on the eleventh trading day of September for corn and the fourteenth trading day of October for soybeans. In the last 20 years, 1989 to 2008, December corn futures dropped an average of 21 cents between those dates. Similarly, November soybean futures dropped 38 cents during that same time.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Are We In a Climate Change?