Is Now the Time to Make Sales or Hold?
As harvest kicks into full steam, farmers are faced with choices concerning unpriced crop. Typically, there is not much of a decision to be made in mid-October, as prices are near their lows for the year. Yet, with a recent 10% price recovery for corn and soybeans, this could be a selling opportunity. We have to ask ourselves if the market is just beginning to rally, or if this is an unexpected opportunity to make sales, rewarding a price recovery that usually comes later in the year.
Knowing when to sell is always a challenge. Yet, when using some basic assumptions and analysis, decisions may be easier. Historically, corn and soybean prices have a tendency to gain from 10% to 15% in value from a harvest low. This year, a 10% increase would mean a gain near 80¢ for soybeans and 35¢ for corn. December corn bottomed on September 18 at $3.42-1/2 and established its recent high at $3.78-1/2 on October 15. This rally of 36¢ represents a 10.5% increase. A similar pattern has occurred in soybeans, as November futures recovered almost 80¢ from the most recent low (and contract low) of $8.12-1/2 on September 18, reaching $8.92 on October 15.
Besides a projected math-based 10% increase, harvest progress is a factor that will likely limit rally potential in the weeks ahead. According to the USDA’s Crop Progress report, as of the week ending October 14, 39% of the corn is in the bin (versus a 35% 5-year average). Soybeans are at 38% harvested (versus a 5-year average of 53%). The take-away here is that the bulk of harvest lies ahead. As harvest progresses and supplies increase, we could see pressure on prices.
Most producers generally do not sell all of their crop prior to harvest. With ample near-term inventory, there may be little merit to the argument of sustaining a rally into harvest. It makes sense to reward this rally with corn and bean sales, knowing you have the ability to retain ownership. If you need to sell because you don’t want to pay storage costs, or if you need cash flow, consider purchasing call options or futures to replace sold bushels.
Talk with your advisor to find a strategy that fits your specific needs, and make sure that your strategy takes advantage of rallies when they are presented.
If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM Ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.