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The two charts in this story are the new 10-year seasonal odds charts that look at the monthly closing price of corn and soybeans from 1998 to 2007. Both of these studies project higher prices as we go forward into the March-through-June period, with corn likely to peak ahead of soybeans.
If this study is correct, then corn and soybean prices are likely to be lower by next fall. With normal weather, prices could be a lot lower by August 2008.
- Nearby corn futures prices are a lot higher now than the 10-year average.
- Corn prices usually top out in the March-through-July time period.
- Storing corn from March into May through June will usually, at best, pay you interest.
- Storing cash corn from May until August is often a major marketing and financial mistake. It was in 2007 and will likely be in 2008.
- The preharvest low in July and August is usually the best time for livestock feeders and ethanol shareholders to buy corn.
The charts of corn price action in six-, 10-, and 20-year data from the CBOT all look very similar with the pattern for corn to bottom prior to harvest. Both the highs and the lows have been coming earlier for corn since the last major low in commodity prices in 2002.
Look on the following page at the 10-year seasonal odds chart for soybeans.
- Soybean prices right now are $4 to $5 per bushel higher than the 10-year average.
- Soybean prices will usually peak later than corn. The 10-year average shows that prices often peak in June or July. The two years when prices rallied sharply higher into June create this average high price in June. The percentage of the time that this has occurred is not very high.
- Most of the seasonal drop in soybean prices is from the June-July high to the August low. The take-home lesson is that storing four to six weeks too long can be a big mistake.
- The seasonal low in soybeans during October - usually right during harvest - still works. Contrast that to corn, where the pattern over the last several years has been for it to bottom right ahead of harvest.
- For livestock feeders, buying soybean meal during October for six to nine months ahead has saved a lot of money the last two years.
Even with the large increase in South American production over the last decade, I'm surprised these seasonal odds pattern of a spring high and October low still work.
How can you use these studies to make better marketing decisions on your own farm?
Stay disciplined. Farmers who have made incremental corn sales - both old and new crop - in the March and April window have made the right marketing and merchandising decision in eight out of the last 10 years. The same basic pattern has also worked for soybeans as well.
As I consider my current recommendations for marketing cash corn and soybeans going forward, I look at three key factors.
Look where we are now compared to the 10-year averages. I call this spreadsheet selling. Even in the face of bullish news when the price targets are hit, I make a 10% to 20% sale. Based on this, I've made four sale recommendations and have most of my customers at least 60% sold on cash corn and soybeans.
I watch price charts and look for patterns that project a high or show a trend reversal to confirm a high. When this sell signal develops, I will increase sales from 60% up to 80% to 100% sold.
Based on my charts, all of my corn will be sold by the March-April period. Then I will sweep the bins clean of soybeans by late June.
As I look at the current market I am surprised by something. There were a large number of farmers who were willing to forward-price corn last year when new-crop futures rallied to $3.20. But now, those same farmers are unwilling to sell this year when new-crop futures have rallied at times to $4.20 and beyond.
The fact that farmers have sold very little of the 13-billion-bushel corn crop and not much of the 2.6-billion-bushel soybean crop sets up a crash in futures or basis - and possibly both - by late in this coming summer.
Looking at the improvement in basis since October and the current carrying charge to summer, I'll likely sell out the rest of my cash soybeans in January and then replace some of those sales with call options.
For corn, the market has still been paying a small return to store into June-July. But if the cash basis bids improve by 5¢ to 10¢ per bushel by early in the new year, I will get the last of the cash corn sold and then replace those sales with some December call options.
Farmers who had a very profitable 2007 and financial gain from the corn and soybean rally made incremental sales into the markets as prices worked higher. Farmers who made smaller profits sold way too much too early or held on too long.
Odds are good that prices will be very volatile again this spring and summer. Producers with a disciplined written marketing plan (those who write it out and call it in) will again have a great year. I hope you are one of them.
The two charts in this story are the new 10-year seasonal odds charts that look at the monthly closing price of corn and soybeans from 1998 to 2007. Both of these studies project higher prices as we go forward into the March-through-June period, with corn likely to peak ahead of soybeans. If this study is correct, then corn and soybean prices are likely to be lower by next fall. With normal weather, prices could be a lot lower by August 2008.