Sell Corn, Soybean Rallies? What Rallies?
DES MOINES, Iowa — While U.S. farmers are more focused on getting their crops in the ground and not looking for the hottest spring grain marketing strategy, there’s an old market saying: Farmers should sell crops as they plant.
This year, you can add to that old saying the suggestion of “sell into rallies.” Farmers may be asking themselves, what rallies?
Though there have not been many opportunities to sell into rallies in the last 30 days, soybean prices are up 2%, corn is up .5%, and the wheat market has fallen by 1.6%.
Eric Fransen, director, Market360 Grain for Stewart-Peterson, admits that it’s difficult to sell at these price levels.
“We have only recommended one 10% sale, so far, when December traded to $3.96 per bushel, in late January. It’s difficult to sell at these levels considering we have had a chance to sell $4.25 December corn futures every year since 2007. We do plan to sell the next 10% at $4.08 December futures, for whatever that is worth,” Fransen says.
John Roach, Roach Ag Marketing, Ltd, says that he is telling farmer-customers to makes sales in early May.
“It’s the time when most growers are worried because their planters are in the shed out of the rain like we expect next week. Farmers need to sell every rally from now until August,” Roach says.
Roach Ag Marketing issued a Sell Signal on corn and soybeans in late April and May, already.
“We hope to sell more corn, beans, and wheat in the next two weeks. We are selling into the rallies,” Roach says.
Mike North, president of Commodity Risk Management Group, says that rally selling is a good idea, if you remain realistic about the market’s potential.
“The strategy is the same each year...sell on rallies and protect from adverse prices. The key to 2017 is maintaining a realistic view of what rallies could/should be,” North says. “With massive old-crop inventories and bulky world inventory, buyers will be reluctant to chase markets, thus minimizing market movement to the upside. Recognize that 20¢ to 30¢ rallies are much more likely than the dollar move experienced last year.”
On Wednesday, the USDA will update its estimates for U.S. grain inventories, perhaps creating another market rally killer. Though old-crop soybean stocks are expected to drop, due to strong demand, they remain high. In addition, the trade sees the USDA’s new-crop soybean stocks at 504 million bushels, the highest level since the 2006/2007 marketing year.
“Carry-out stocks are expected to be big this year, and most farmers will admit to holding more corn today and less new-crop corn sold than they planned. Farmers have sold most of their old-crop beans and few of their new crop. This is not news to the market,” Roach says.
Roach adds, “Traders have very big old-crop U.S. and new-crop South American soybean numbers in their calculations. Spec funds built large net shorts. Yet prices quit going down because the focus shifted to getting big yields in the U.S., and those yields are being threatened a little right now.”
With the board not offering a selling opportunity, market advisers suggest selling crops for cash and re-owning them on the futures board of the CME Group Exchange.
“We do have a very ample supply of corn today, and I do think we’ll see a lot of farmer-selling if the nearby contract gets back to the $4.00 level. I do think selling cash and reowning with futures makes sense now to take advantage of the basis improvement,” Fransen says. “June – August should provide better opportunities to make straight cash sales especially considering the lower acres for corn.”
Roach agrees that positioning your grain marketing plan with reownership is a good strategy.
“Plan on making cash sales on all of the rallies during the early part of the 2017 growing season. Take a serious look at buying back those sales during harvest lows and carrying the bushels into spring,” Roach says.
What’s Up With Basis
With large old-crop supplies and lingering piles of farmer-owned corn, the market’s ability to rally gets diminished. As a result, basis levels in the countryside remain wider than farmers had hoped for this time of the year, North says.
“As supplies tighten or farmers hold out, basis will see recovery. However, it will take some time before either scenario has a perceivable chance. With that in mind, we must still take a defensive posture. Going forward, we will continue using put option strategies to defend price while setting targets to make sales on smaller rallies,” North says.
For new-crop sales, farmers need to compare current basis levels with average.
“If you don’t think basis can improve by twice as much as the locally offered hedge-to-arrive contract fee, you need to lock it in or sell futures instead,” Fransen says.
Fransen adds, “There’s no guarantee that the market will give everyone a chance to make money every year. I have seen strategies that involve selling call option contracts to try and create a higher price on part of a producer’s crop that seem very risky to me. We have a lot of weather to trade before this crop is in the bin.”