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Will 2013 be similar to 2005 or 2009?
I use a combination of analytic tools when working on price projections for the year. I study fundamentals, long-term chart cycles, and something called analog years. When I study analog years, I look for similar characteristics.
As I look back at years with similar characteristics to what I expect in the 2013 marketing year, I find that a lot of years meet most of the eight basic criteria that I look for. Here are the top three criteria that I use to make my projections.
1. I select years when prices traded higher during the last two marketing years.
Because grain prices are a lot higher now than in 2009 and especially back in 2005, I use the percentage price change instead of just looking at the change using cents per bushel.
2. I look at years where ending stocks would increase dramatically if we have a return to normal weather.
3. I select years when we had a similar farm program to the Freedom to Farm program. I considered using two other years: 1981 and 2001. I am not using them because of the impact of the old farm program rules. Many farmers were not changing acres when the market signaled to change which crops they would plant. Back in 1981 and even in 2001, most farmers made planting decisions to keep in compliance with the FSA acreage base rules.
On the other hand, 2005 and 2009 appear to be very similar to what will likely develop in 2013. By coincidence, these are also two postpresidential election years.
In the tables below, notice how they are somewhat similar. In both 2005 and in 2009, you had the opportunity to get crops forward-sold between June through July. These proved to be good sales. By that fall, prices were a lot lower. The lows in the corn and soybean markets came in consistently in September through November.
For the corn comparisons, do not look for an exact repeat of 2005 or 2009. The final result may be the same with a 32% to 35% decline from the contract high to a harvest low. The financial crisis of 2009 took almost all commodity prices 8% to 10% lower than if there had not been a total market collapse.
If you place hedges between May and July, you will be pleased with the results this fall. Make sure you stay with a disciplined marketing plan. Use rallies to make your sales. If you are uncertain of your production or are not comfortable with the price you are locking in, consider using put options.
For the soybean comparisons, expect price action this year that is a blend of 2005 and 2009. Do not expect a 43% decline like in 2009, because, again, the financial crisis of 2009 took almost all commodity prices 8% to 10% lower due to that collapse. I recommend a disciplined new-crop marketing plan using rallies in May through July to get your new-crop soybeans protected with a combination of hedges and puts. contract highs?
Here are two unknowns I’m still evaluating for 2013:
- Will the contract highs that occurred in late August and early September 2012 for the December 2013 corn contract and the November 2013 soybean contracts continue to be the contract high?
- Or will they be taken out this spring and summer on a weather scare?
If those are the contract highs, it sets up some very low price projections for next fall. The projections are for prices to drop 28% to 44% from the existing contract highs.
Using the current contract highs, it projects December corn futures down to $4.52 to $4.78. For November soybeans, a repeat of 2005 or 2009 would take futures down to $7.89 to $8.03.
These are not my current price forecasts. However, it does show you the possible risk of where prices could go if there are large increases in planted corn and soybean acres and a return to normal weather. These prices seem unrealistically low at this time.
Yes, there is risk of prices going down this year. Use a combination of hedges and puts to get price protection on your entire crop if futures rally into the June-through-July time period.
This is likely to be another volatile year, with tight old-crop inventories and a stubborn drought hanging on in the western Corn Belt. If history repeats itself, however, it looks like 2013 could be a good year to be an aggressive marketer.