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Roy Smith: Is this the year?

One
of the techniques I use to study seasonal trends in grain markets is to plot
cash soybean and corn prices at my local elevator over a period of years. Using
this information I look at the actual prices received for grain, beginning with
harvest in the fall and continuing into August the following year. I plot only
the closing price on the first trading day of the month to simplify
calculations and to avoid having a huge pile of numbers to wade through. This
less than scientific method nonetheless gives me a good idea of price
probabilities over a period of years.

Of particular interest
right now is the chance of getting a big rally before harvest comes in a couple
of months. Prices, for both grains, have held together well during the early
part of the summer in the face of adequate rainfall in most of the Midwest.
Soybeans in particular have held their bull spread situation regardless of what
the fundamentals have done. The price for soybeans for immediate delivery has
held a premium to those for deferred delivery as far back as I can remember.
For farmers still holding some of last year’s soybean crop, there is a hope
that there will be squeeze in August before new crop supplies become available.
  

I looked at historic price
data to see if that kind of move has ever happened. In all cases I subtract a
cost for storage and interest from the price received at the elevator. Remember
that I am using prices here in Cass County that will not necessarily be the
same as those in other locations.  In the past 21 years the highest net
price for soybeans has occurred in August only two years, 2001 and 1992. The
highest price for corn has been in August only one year, 2001.

So far for the 2009 crop,
the high on soybeans was $10.10 on December 16.  There have been three
other years when the high was in December, 1990, 1998 and 2000.
The high in
the cash corn price was $3.66 on January 11. The highest corn price for the
year has happened in January only one year, 1993. 

A study of these data
indicates that the odds are pretty small for seeing the highest price of the
marketing year before the combines roll. On the other hand, if an individual
has stored the grain this long, holding for a few more days may be an
acceptable risk. Taking that risk, one must keep in mind that at some point
processors may shut down for annual maintenance. They then drop basis to
curtail sales until the new crop is available. When that happens the party is
over for the good basis levels for nearby delivery.

The situation for corn is
similar to that for soybeans except that there is no shortage of grain for
immediate delivery. Just today I heard of a situation in outstate Nebraska of a
mega bin full of corn that had gone out of condition to the point of plugging
the unloading equipment. Maintaining corn in Number 2 condition is one big
reason why I set the “drop dead” of July 1 for making corn sales. I missed the
top price by a few pennies but the grain is gone and I have time to get bins ready
for harvest.  

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