Spring is about to start and that means planting season is not far behind. It’s a good time to run some fresh air through the marketing challenges that have been hanging in our closet all winter.
Do you still have some of last year’s corn and soybeans in the bin? Of course you do! It seems that just about every farmer in the Corn Belt is still holding on to a portion – for some a large portion – of their 2015 harvest. Your patience is wearing thin, since harvest, corn and soybean prices have been frustratingly flat to lower.
And where is the volatility? Cash corn prices have been stuck in a 20¢ range since October. Except for a brief dip lower in early November and a brief rally in early December, soybeans prices have been stuck in nearly the same narrow range.
A good seasonal chart of cash corn and soybean prices will show that, on average, the May/June time period is when prices are highest. Beware the temptation to hold grain longer.
By early summer, two powerful price tendency start to work against the value of grain in storage. The first is the strong seasonal tendency for new crop futures prices to decline from late spring to harvest. The second powerful force is basis, which must transition from seasonal highs in late spring and early summer to harvest lows.
I suggest a game plan to methodically empty your bins in the April/May/June period. Are you concerned about the possibility of a weather-driven price rally in the summer? You might selectively re-own these cash sales with out-of-the-money call options. Or you might look ahead to pricing new crop.
Sales and basis
Flat prices and little volatility; the same description applies to new-crop opportunities. My pre-harvest marketing plans use breakeven costs of production to define my starting point for new-crop pricing. It will take a serious market disruption to get us anywhere near breakeven price levels in 2016, which I estimate at $4.50-5/bu. for Dec’16 corn futures and $10.50-11 for Nov’16 soybean futures. We have spent the winter far below these price levels.
What should you do? This marketing game is not easy. Sometimes we maximize profits, and sometimes – like this year – we fight to minimize losses. I haven’t found a clever way to write it into my marketing plan, but my preference is to price 20-40% of expected production before harvest, even with prices less than costs. Late spring and early summer is often a good time to get it done. What is your preference?
Ah, another source of frustration. This winter, have you noticed how a declining board (bad) has often been matched by a stronger basis (good)? And how a stronger board (good) has often been matched by a weaker basis (bad)? In a time of ample stocks in the farmer’s hand, basis simply reflects the difficulty of buying grain as futures prices decline, and the ease of buying grain when futures prices rise. Expect more of the same basis frustration in the months ahead.
Win, lose or draw, late spring and early summer is the time to get serious about pricing old and new crop grain.