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Seasonal price patterns still work

Al Kluis 11/01/2012 @ 10:03am

Corn prices have rallied higher later in the year in the last five years. Shift your new-crop selling from March-June over to April-July. March, which used to be a good selling month, is now usually a time to buy. The seasonal low has been coming in either September or November.

“I'm not going to sell ahead ever again” was the comment from a frustrated young farmer in western Illinois at a fall marketing seminar. “It has not worked the last two years, and now I have really dug myself in a hole.”

In the 30-plus years that I've been holding marketing seminars, I have learned to ask a lot of questions before I give a response. Here are the first basic questions I ask.

• Do you have crop insurance? If so, at what level?

• What percentage of your crop did you sell ahead?

• How did you sell it ahead?

• At what price are you sold ahead?

When I quizzed the young farmer, I found out he had 85% RP crop insurance on his corn and soybeans; he had only forward-sold about 30% of his crop ahead (although now with the drought, it was more like 50%); he had sold ahead on hedge-to-arrive contracts; and he had sold half of his crop ahead early and had an average price on December 2012 corn at $5.80 and his hedge price was at $13.40 for the November 2012 soybean futures.

With the crop insurance policy the young farmer had, the yield he was going to harvest, and the amount he had sold ahead, I told him he was still going to have an OK year.

In the 30-plus years I've been holding marketing seminars, I have learned to ask a lot of questions before I give a response.
His biggest mistake wasn't selling ahead – it was selling ahead too much all at one time. Overall, he did a good job. The new-crop sales would have been to his benefit the majority of the last 10 years.

As a seasonal seller, I believe that seasonal selling over the long term helps my bottom line.

This year, like most years, I made incremental new-crop hedge recommendations in the April-July seasonal time period. This year (like one out of eight years), the new-crop forward-selling price was less than if I had just sold right off the combine. The reason I sell ahead each year is that I am never sure when we're in one of those eight years. What I gain in the other seven years more than offsets my losses in a year like this.

The market has changed a lot over the last 30 years, and the seasonal patterns have changed in the last five years. As a result, the way that I make recommendations to sell cash crops and to place new-crop hedges has changed as well.

Soybeans now trade in two six-month cycles rather than a one-year seasonal pattern. In years when there are production problems in South America, you can get a January or a February high. In years when the problem is in the U.S., prices will peak out in the late summer months.

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