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SoyRoy: Sell something soon

08/10/2013 @ 8:53am

Those of us raised on farms commonly refer to August and early September as the dog days. I have never exactly understood why this part of the year has been given that name. This week I have been dog-sitting my grandson’s puppy while his family is on vacation. The weather has been relatively cool most of the week. The pup seems to be quite content to sit on the back porch and wait for me to take her on a ride in my pickup. For humans that does not seem very exciting. I suppose for a dog that spends most of the day cooped up waiting for her master to get home, riding in the pickup is a welcome break from lying around!

The grain markets in August sometimes act like a lazy dog, waiting for something exciting to happen. Long-term seasonal charts show a relatively tranquil period from August 1 through September 10. That has not been the situation this year. With the market trying to sort out the fundamental factors brought about by last year’s drought and this year’s late planting, futures prices have been volatile and basis levels have been unbelievable. Soybeans and corn have gone back and forth in leading prices lower, then higher.

Positive basis levels of +$1.10 for corn and +$.95 for soybeans indicate that demand is still good for both grains. For most of the last month those of us who watch the markets have anticipated that the old-crop and new-crop prices would come together. At some time they will. However, the lateness of planting and cool weather in the north-central states will delay harvest enough that there might not be a rush of grain as there usually is in the early part of harvest. If so, the basis on new-crop grains should improve dramatically from -.30 and -.65 where they are today.

I do not usually recommend specific actions for readers to take when selling grain. However, here are some suggestions to take a look at for the next month. If you still hold old-crop inventories of either grain, odds are against you the longer you hold it. Chances of better prices as harvest nears are slim. Even if futures prices stay level or rise slightly, the basis offers will probably drop from their record-high levels.

For new-crop of either grain, odds favor setting the futures prices between now and the day before the September crop report. It is normally better to forward price grain that will go to the elevator at harvest as opposed to selling as it is harvested. Odds also favor leaving the basis open by selling futures or hedge-to-arrive contracts instead of cash contracts. Nothing says basis has to get better, but it does about four years out of five.

My opinion is that the dead-cat bounce in soybeans could exceed the 30 cents to $1.00 normally expected once harvest is complete. Corn may not reach those levels, but recent years have shown a bounce in corn following harvest as well. That makes short-term storage a high probability strategy. For those farmers with adequate storage on the farm, holding grain unpriced or selling the carry when spreads are favorable are potentially good strategies.  

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Weather Trumps Demand