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Roy Smith: Is this the year?

07/29/2010 @ 11:00pm

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.

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