I've been getting to work a little later the last couple of months because the markets have been flat. And if customers followed our earlier sale recommendations, there aren't a lot of decisions to be made.
Right now the low-priced corn and soybean markets are resulting in better-than-expected usage, larger potential counter-cyclical payments and good profits in the ethanol and livestock industries.
Over the last two decades I've learned that you get more interest in the grain markets, more phone calls and more trading volume when prices are high and trending higher.
Just look at some of the front-page headlines in The Wall Street Journal from last summer. Some of the best low-risk opportunities develop when farmers have harvested a large crop, the bins are full and it looks like prices are going to stay down forever. But you still have to make some decisions about getting the last part of your 2004 crop sold and get a game plan in place for 2005.
I suggest you take two different approaches to the market. The first is what I call spread sheet decisions. You need to know three basic facts:
Your cost of production,
How much storage you have, and
When you need the money.
With that information I'm always willing to make scale-up, new-crop sales getting up to 20-40% forward sold on a disciplined new-crop sales program.
For those bushels:
Make a 20% sale whenever new-crop December corn futures reach $2.50.
Make a 20% new-crop sale whenever new-crop November soybean futures hit $6.20.
At $2.70 December corn, make a 30% sale and at $2.90 the rest of those bushels are sold.
For soybeans the 30% target is at $6.70 and the rest of the bushels are sold if November futures hit $7.20.
If you have storage, place the hedge into the differed futures contract, remain disciplined and call in your offers.
The second decision-making approach is to consider using different trend analysis decision rules on 20-40% of your crop.
When prices are shooting higher, move your sell stops up below the market using a 10-day moving average. You won't get the high tick using that method, but you may sell within one to three days of a major high.
Another key level to watch is the two previous weeks' low. After an extended up move, when that low's taken out it's a sell signal.
When prices get really volatile (20¢ trading ranges in corn and 50¢ in soybeans) it's a sign of the top. You can then use the two-day rule. Closing below the two previous days' low would be your final sell signal. Nerve racking, yes, but it can really increase your bottom line. The key is to have your offer in place and stick with your plan.
What To Do Now
For livestock producers or farmers who own shares in an ethanol plant, use any weakness late this month to get 20-40% of your second and third quarter needs locked in.
If you're a grain farmer, you should have made the sales earlier or odds would favor carrying the balance of your corn and soybeans ahead into this spring and summer.
With the El Niño weather pattern and saturated soil in the Eastern and Southern Corn Belt, odds are good that you'll get a delayed-planting weather scare this spring. Odds of getting two bin-busting crops in a row are very slim.
Now is a good time to do a thorough review of your decision-making and selling processes. If you have a lot of unpriced inventory on hand, it may be time to get enrolled in a managed grain program.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].