Old-crop corn likely hasn’t seen it’s bottom, even after a $1/bu. cave-in following the bearish grain stocks report March 28, warns Ed Usset, University of Minnesota grain marketing specialist. Usset’s book, "Grain Marketing is Simple (it's just not easy)," examines the difficulties in knowing when to make grain sales. It couldn’t be more relevant than now.
“Before last week, there had been a $2/bu. inversion of old-crop May 2013 corn futures vs. new-crop December futures,” he says. “Then, old-crop dropped 40¢ one day (March 28) then 50¢ the next day of trading.
“But there’s still a $1-1.25 inverse out there. It, too, will eventually go away (as old-crop and new-crop prices converge). I think it will take until summer. But it won’t be gradual. When the inverse correction begins, it will probably resolve itself quickly.”
It could be tagged an old-crop grain “fiscal cliff.” The May corn futures price chart saw trend lines turn vertical March 28-30. Prices nose-dived from $7.40 to $6.40 in a blink after a USDA report said more grain stocks had been found.
Prices skidded to $6.30 on Thursday (April 4) and closed at $6.29 Friday. And with the chance of a good corn crop as opposed to the drought-stricken yields seen in 2012, old- and new-crop sales are more likely to slide even more, Usset says.
He says that even though many growers have locked in revenue crop insurance in the $5.65 range, much corn will not be price protected if a bumper crop sends prices lower.
“A lot of farmers don’t want to think about early sales. They’ve done it the last few years and the market has beat them back (with unseasonal increases),” Usset says. “But the first thing they need to do is forget last year. 2013 will go it’s own direction.
“More often than not, we get good crops instead of bad crops. I still believe there is greater risk on the downside than the upside. If we see $4.50 at harvest, you have to say ‘what will that do to my bottom line?’ and think about some kind of pricing.
“I’m uncomfortable that a lot of people still haven’t done anything for 2013. New-crop prices are still profitable (in the $5.40 range).”
Usset adds that some states, like Minnesota, dodged the drought last year and produced big crops. “Some farmers still have a lot of old-crop left,” he says. “I don’t disagree with hanging on to a few bushels. But if it’s not working, get out and move on.”