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Planting Time - Now What For the Markets?

04/25/2014 @ 1:19pm

The long-term seasonal charts show that the best odds for hitting good prices in the grain markets are during the period between April 1 and July 4. We are now in that time period. So far this year, the markets have shown a strong tendency to follow the normal patterns and the normal psychology that goes with them. After a depressing time in the months of December and January, prices for all three grains have rebounded. The trends higher have been stronger than usual this year. That is probably due to the fact that, at least for corn, the prices at the harvest low started out at such depressing levels.

At one point, here in Cass County, Nebraska, cash corn was below $4 per bushel. With most farmers’ cost of production $1 per bushel higher than that, I doubted that prices could stay that low for very long. My suspicion proved to be justified. Consequently, the market is now offering most farmers the opportunity to sell at a price that is close to breakeven, if not above.

Meanwhile, soybean prices have responded to export demand by grinding their way higher. We would all like to see more strength in new-crop prices. However, for those holding even a few 2013 soybeans, the profit potential is dramatic. Recent bids put the cash forward contracts for soybeans close to $12. Ignoring the negative carry between May futures and November futures may be the key to profit in the soybean market this year as it was in corn last year. If indeed the world will be awash in soybeans this fall as some forecasters predict, selling new crop for $12 may be a great move. Someday the soybean market will break. Judging when that will happen is the hard part.

The corn situation is more difficult to call. Even after the recent strong rally, prices are still not where most of us would like to see them. Profit margins are slim at best. Even the old standby of selling the carry does not work this year. Using the potential basis improvement by selling futures or hedge-to-arrive contracts adds only a small profit potential. Research done for the “Marketing in a New Era” workshops this year shows the advisability of not forward pricing below the cost of production. It is better to leave the top side open than to lock in a loss. Remember that we have until the end of August 2015 to price the 2014 crop. A lot can happen in the year-and-a-half between now and then. Feeding small increments into the market from time to time on small rallies is a possibility. However, especially if you have on-farm storage, locking in a loss is not normally a winning strategy. 

In my workshops in Nebraska, I point out that there is more urgency to forward price irrigated corn than rain-fed corn or soybeans. This is because the cost of inputs is higher with irrigation. This especially leaves the irrigated corn farmer in a bind with few good alternatives. One suggestion for both corn and soybeans is to wait until late August or early September to make forward sales. Odds are good for prices to drop after the September crop report. While that is too late for selling old crop, having a good idea what yields will be makes selling the crop in the field more realistic. 

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