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Defying farm market odds

This week, I have been busy updating my seasonal price charts in preparation for my first marketing meeting on December 13 at Friend Nebraska. I keep charts of the cash grain bids at my local elevator beginning on January 1 and continuing through December 1 for cash corn and November 1 for cash soybeans. To limit the amount of data I process for analysis, I use only the cash price on the first trading day of each month along with the highest price for the year. It might seem as if only one price per month is inadequate for analysis. In the years I have been doing this, I have not seen the need for more detail. Each year, I get a good picture of the trends for a specific year and for any combination of years I wish to study. 

Prices for the 2010 corn crop, which is the latest for which I have data, followed the normal trend in that they began in November with a cash bid of $5.07. They peaked out in June at $13.60. Prices continued strong through August. That two month extension of good prices is quite unusual. The peak in August was only 12 cents below the June peak. In the 22 years of price data, there was only one year when the highest price of the marketing year was in August. It was very close this year. If storage and interest costs were subtracted from the cash price, the June top would have looked more impressive.

Trying to pick a month to make sales that will result in high prices every year is an exercise in frustration. The chart of corn bids shows that in the last 22 marketing years the highest price has come in every month beginning in December continuing through August. If I were to write a rule for selling cash corn based on the long term charts, I would recommend selling an equal amount in the moths of April, May and June. Even though more price peaks happen in July than any other month, holding for a price peak in that month risks carrying into August and suffering from the price drop that frequently comes as harvest approaches.

Soybean cash charts look slightly different than those for corn. If costs of interest and storage are included in the calculations, selling by the middle of February resulted in returns almost as good this year as those in the summer months, without the risk of getting caught in a market down draft. This is evidence of the dead cat bounce which is a very reliable price move every year. Until this year, I have always said that the highest cash soybean price never happens in February. This year the highest price was on February 9 at $13.81. Rallies in June and August resulted in price peaks very close to the February high.

Now that the “never sell in February” rule has been broken, there are still two months, March and April, that since 1989 have not seen the highest net price of the year. This is an illustration of the principle that in marketing nothing is certain. Some year there will be a high in those two months in which the Southern Hemisphere harvests their crop.

For a long time, I held the belief that it was possible to make money every year by storing grain from harvest through the following summer if I could only pick the highest day to sell. Studying my cash price charts shows that there were three years when it was impossible to profit from storing corn and two years when it was impossible to profit from storing soybeans regardless of when the sale was made. That shows that odds are about 90 percent that the price will be available some time.  The challenge is in developing a strategy to take advantage of the good price when it is there!

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