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Sell rallies, or no?-Roy Smith
The weather rally is the most widely known of the seasonal moves in the soybean and corn markets. There is also probably no time when it is more difficult to make good selling decisions.
Anyone who has been farming for more than one year has had the experience of selling too soon only to have prices shoot higher because of some weather event.
That unpleasant experience happened as recently as this month. Corn prices here in southeast Nebraska dropped 71 cents per bushel on June 30 and July 1. This was followed by a rebound of $1.63 by July 10. The recovery was attributed to multiple production problems throughout the corn growing areas of this country. Farmers who panicked and sold near the bottom quickly had seller’s remorse. Those who did not sell were reluctant to pull the trigger, as prices later peaked, because they feared prices going even higher.
One of the principles I teach in my marketing workshops is that it is almost impossible to feel good about a selling decision. If you sell and the price goes up, you sold too soon. If you sell and the price goes down, you did not sell enough. It is difficult to separate good judgment from emotion. That is especially true in today’s market environment with prices so high.
This is the time when there is a good probability of seeing the highest prices of the year. The problem is that the timing of these price peaks is very unpredictable. Adding to the confusion is the uncertainty of yields this far ahead of harvest. Production risk is another variable that makes decisions difficult. Crop insurance with price protection is a good backstop for forward pricing moves. However, no farmer wants to sell grain and then not be able to deliver in the event of a weather disaster.
I have long held to the rule that I do not own any unpriced grain past July 1. This year I decided to keep a small increment of 2010 corn in the event of a squeeze on September futures. Holding for a few days ended up being a wise choice because the weather rally mentioned above resulted in the highest price in history for cash corn. Unfortunately, that peak lasted only a few days before heading back south. Today, I got the last increment priced a dollar above the July 1 low but well below the July 10 peak.
This situation illustrates the wisdom of selling small quantities throughout the spring and summer. It also illustrates that selling a big percentage of your crop during a panic drop in prices seldom ends up looking good later.
At this point, I have no 2011 crop corn forward-priced. With new crop bids 72 cents under old crop, storing on the farm and holding for a rally following harvest looks like a better strategy considering the production problems so far this growing season.