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Money to be made in forward cash corn sales, analysts say

Agriculture.com Staff 07/05/2006 @ 12:22pm

Despite widening cash basis levels at local elevators, farmers are urged to look at forward selling some old-crop, analysts said.

With high barge freights, supply outpacing demand, and ethanol plants bought up for months in advance, the nearby cash price for corn is being pressured. However, there is an improvement in price in the out-months, analysts say.

Jason Ward, North Star Commodity Investment Co., said there are opportunities to make money in forward cash sales right now.

"I'm telling farmer-customers to look around, call the elevators and ask what is the price for January delivery," Ward said. "They will find there is enough carry to make some decent money."

For example, at one Midwest elevator, cash price on Wednesday was $2.08 per bushel. But, for January delivery, the price was $2.56 per bushel. With free storage through September 1, the farmer would have a storage bill of $0.13 per bushel when the January contract comes due.

"That's still a $0.36 carry, not bad money," Ward said.

In addition, Ward said the market has rallied 20 cents in the past week, and this should be a sell signal.

"You need to reward that rally with a sale and it should be old-crop because you are running out of time with that stuff."

Also, look at some put options to protect the downside to the market. Leave upside wide open through pollination, and with those puts you have downside covered, Ward said.

"That is a good position to be in right now," Ward said.

Jerry Gulke, Strategic Marketing Services Inc., agreed that farmers shouldn't wait to market old-crop corn.

"For areas that are getting rain, the basis is expected to be even wider in the fall than it is now," Gulke said. "There could be a real train wreck coming in the eastern Corn Belt."

Because forced sales (due to lack of storage) in the fall are usually at the worst price of the year, John Roach, Roach Ag Marketing, Ltd, suggested farmers pay attention to any upcoming weather market rally.

"During the next sell signal, it is important that you make good progress on selling those bushels that you cannot store," Roach said in a daily newsletter.

Despite widening cash basis levels at local elevators, farmers are urged to look at forward selling some old-crop, analysts said.

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