Still time to sell some crop, rally not over
With record large corn and soybean crops expected, the current harvest rally in prices has some analysts baffled. Farmers are urged to sell some crop into the rally.
Harvest rallies are so rare that one hasn't occurred since 1995. And even then, the rally didn't compare to the $0.55 jump in the corn market in the past month.
On September 15, 2006, the Dec. '06 futures contract on the Chicago Board of Trade traded as low as $2.36 per bushel. On Monday, the same corn contract topped out at $2.91.
"That is a big move in corn," said Ray Grabanski, Progressive Ag Marketing. "Especially when you are at the beginning stages of harvesting an 11.0 billion bushel crop. "The rally equates to an extra $5.5 billion that someone decided farmers needed for their corn this year."
Grabanski added, "It's very surprising to me the market would push up that far that quickly."
With the rapid rise in prices, it begs the question of whether the market is attempting to get farmers to sell their crop rather than store it?
Bill Tierney, John Stewart & Associates agreed that farmers should be selling at these prices, and believes many have. "If you haven't sold any (corn), these are great prices to be taking advantage of. Plus, if you anticipate harvest pressure will result in a $0.25-$0.30 per bushel drop in cash bids, I would be doing some pricing," Tierney said.
Tierney added, "A week ago merchants said that if the prices went up another $0.10 per bushel they had farmers willing to move corn. So selling has been going on." From Dec. 2006 to July 2006, a $0.35 spread, (profit from storing) has been dwindled by one-fourth. This sends a message to farmers the market is telling them to sell not store, analysts said.
However, even at the current price factors, storage still pays for corn, Grabanski said. "It will pay out to May anyway. "So, the market hasn't dwindled that profit enough." Grabanski added, "Plus, I notice the distant months haven't done nearly as well as the nearbys. For corn especially, Dec. '07 and Dec. '08 contracts have hardly moved in this $0.55 rally. Maybe the market thinks its got enough price to provide incentive for the producers to plant more in the future years."
For months, the market mantra has been store the crop, throw away the key and wait for a price hike. The current market is altering that thought, analysts said.
When deciding whether to sell or store this year's crop, farmers should consider selling some at near $3.00 prices, Grabanski said.
"I have no problem, when corn costs $2.50 per bushel to produce, selling at $3.00 and putting $0.15 or so into call options. Then sit on the sidelines and cheer the funds investors on. They may run the market up another $0.50-$0.75 and you don't have to risk your farm doing it."
For soybeans, prices are still too cheap to attract much selling, analysts said.
John Roach, Roach Ag Marketing, Ltd, said there might be a better time to sell soybeans than now. "If you have storage, I believe worry about the Southern Hemisphereâ€™s bean crop should give beans a rally in December," Roach said in a daily newsletter on Wednesday. "I think post-harvest rallies should have a higher peak because farmers will be stronger holders after the crop is put away."