Roy SmithIt's time to wrap up old-crop sales, start on new
It seems that a lot of people are surprised by the strength in the grain markets, in the face of good weather and rapid planting progress. Having the corn market go up in the face of good planting conditions does not seem to be logical. Even more baffling is the strength in soybean prices in the face of the wrap up of the largest crop in history in South America. Maybe there are fundamental factors that are not apparent to the untrained observer.
Maybe the market is just doing what it historically does at this important time period. Long term seasonal charts show that about two years out of three prices are strong in April and May. Good demand for old crop grains has been in place for a half year after the slow 2009 harvest. There is still a half year of unknown production risk factors before the 2010 crop becomes available. Add to those factors strong outside markets and optimism in the stock market and it is not hard to explain good grain prices.
What is difficult for me to explain all of the discussion about farmers planting extra acres of corn because of rapid planting progress. If enough extra acres of corn are planted, it should be a stimulus for individuals with insight to plant more acres of soybeans and fewer acres of corn. With my estimated cost of production based on APH yields and current local cash forward contract bids, I show 17 cents a bushel estimated profit on corn and 67 cents profit on soybeans. That is hardly a big reason to shift acres to corn. That is especially true in my area where there is a large yield drag on second year corn. My neighbors are quite happy sticking to rotation regardless of production outlook or current prices!
The big question for me is setting the price or time targets for making incremental sales. I have 80 percent of my 2009 corn sold or priced in futures. I have no new crop priced. For my small operation a normal futures contract locks in a third of my crop. I have 90 percent of last year's soybeans sold. I am getting anxious about the remaining amount as prices get within shooting distance of $10. I have 40 percent of new crop priced in November futures at $9.28 and $9.50. That is about 24 cents better than at a comparable time last year. As always, crop insurance guarantees are a factor in determining both the amount I forward price and at what level.
The seasonal trends still favor being long soybeans until May 11, or until the end of June if you are willing to wait through a good probability of a pull back in late May or Early June. I find waiting for a weather rally unnerving in years when growing conditions are good. Personally I would rather get new crop sales made in April and May and use lower prices in early summer to buy call options to cover those sales when prices go down.
I will be looking at the next two weeks to wrap up old crop sales and to price additional increments of new crop while there is still uncertainty about production prospects. Reports from around the Corn Belt show excellent planting progress. That is not necessarily the case in Nebraska. I had two productive planting days on Monday and Tuesday of this week. No-till land has been cool and wet for most of April. Some corn was planted on Thursday of this week into soil that was wet enough that I was willing to wait. It is raining as I write this. Planting progress for the next few days will probably not be as fast as what is already done.