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Positive signs for corn - Roy Smith
Now that the calendar has passed February and the season has turned to spring, it is time to look for opportunities to market the remaining corn from the 2012 crop. My old principal of never selling soybeans in February worked very well this year. Of course this year any market watcher could have also said never sell in December or January and looked good by today.
The soybean marketing strategy of holding cash beans unpriced until spring worked almost perfectly. My strategy of selling my soybeans on the dead cat bounce resulted in selling far off the top, wherever that might end up being in the future. Knowing that I missed the high with a well thought out strategy has not caused me any heartburn in a market that rallied off the harvest low in October and never looked back.
The corn market is a different story. A chart of corn prices since last October looks like a saw blade lying on its back. Looking back from today’s price there were numerous rallies that challenged old highs and failed to have any follow through. There were a similar number that tried to break support but were unable to. Using the charts to trigger sales was an exercise in frustration.
Last week I suggested that using cash flow to decide when to sell is a workable plan. However, prices have been up and down so much that it was difficult to avoid panic when prices dropped. It was similarly difficult to avoid greed when prices made highs that exceeded those at harvest. A look at the bid sheet from my local elevator illustrates this point.
I typically use the price on October 1 as the benchmark for later comparisons. That price was $5.48. At the time it seemed like an acceptable price for a big corn crop. A month later the crop did not look nearly as big. The $5.48 price did not look nearly as good compared to $6.27 which was the bid on November 1.
By December 15 the price was back to $5.57, which was not all that good for farmers whose yields turned out to be less than expected. This frustrating movement back and forth continued into this week. At one point on Friday March 16 the cash bid was $6.50. By today the bid was back to $6.24. I finally pulled the trigger on a sale of a fourth of my 2011 crop. That price compares favorably to the October 1 price and the December 1 price. It is roughly the same as I could have gotten in November. It is much better than the February 15 price but not nearly as good as the March 15 price.
The factor that motivated me to make a sale at this time, besides the fact that it is now selling season, is that the projected cost per bushel when I did 2011 budgets was $3.77. This projection was based on inputs that I purchased in the fall of 2010. Costs for the 2012 crop will be much greater.
Even though the bid dropped 25 cents this week, the price is still greater than was anticipated most of the winter. I still have bushels to sell on any future rally. This week there was a minor improvement in basis for corn for current delivery. Some days there was still bull spreading going on. These are both positive indicators for future price action.
Maybe more importantly, Sharon still has a target of $6.50 for her share of the crop! Her instincts are usually better then mine. Next week’s crop report will probably tell which strategy turns out to be the winner.