The drop in corn and soybean prices into early March brought a lot of corn and soybeans to market. The news was bearish for price, and farmers needed to generate cash for rent and other payments.
Now the new farm program makes marketing at the right time more important than ever. You need to remain aware of what counter-cyclical payments (CCP) are available and how small the payments will be — even if prices collapse later this marketing year.
As you read this, more than 60% of the corn will likely be sold. Historically, 70% of soybeans will have moved off the farm.
As the above table shows, option expiration is significant because of the interaction of options and futures and how often the option expiration day can represent a major high or low in the market.
|Option Expiration||First Notice Day||Contract Expiration|
|Here are key seasonal dates to watch for changes in price trends based on how the Chicago Board of Trade operates.|
|* Soybeans Only|
First notice day has often been when futures bottom. This is especially true if speculators are carrying a large long position and ending stocks are increasing. Contract expiration has often occurred when prices have put in a peak.
This is often true when ending stocks are tight and farmers have limited cash inventory to sell.
Using our analysis of time cycles, here are key weeks to expect a major change of trend when a significant high is likely to occur. The weeks ending: April 25, May 23, July 14, Aug. 8 and Sept. 12.
Some of the same dates pop up — using two different methods. This increases the odds of a significant low. Or, they may be a major high and an excellent selling opportunity.
What should you do? Stay disciplined and be willing to make incremental scale-up sales. If you're bullish and have a hard time selling inventory or making new-crop sales, buy out-of-the-money calls on the next major setback. Then call your offers to sell to your elevator and let the market come to you. Or check with your elevator to see if it offers managed grain products.
Here are four fundamental factors to watch:
If your cash corn bid is 30-35¢ over your county loan, make sure you have sales up to 60% or more. When the corn market is 30-35¢ over loan, you're receiving the full benefit of the farm program in the cash market. And if prices stay at that level or work higher, you won't get a loan deficiency payment (LDP) and the amount of your counter-cyclical payment (CCP) will be limited.
If your cash soybean bid is 35-40¢ over your county loan, it's time to get at least 70% sold in the cash market. If soybean prices stay at this level or work higher, you'll not get any LDP payment and little or no CCP.
If you hold all of your cash soybeans and prices collapse, you'll get an insignificant amount of CCP because of the small amount of crop that's usually sold in the May-September period.
If and how far prices rally will mainly be a function of planted acreage and yield.
For corn, the trade estimates calls for a planted acreage of 80.5 million acres and a crop of 10.2 billion bushels.
In the soybean market, trade is building in planted acreage of 72.2 million acres and a total crop of 2.815 billion bushels. As usual, Mother Nature will be the key player to determine if December Board of Trade corn futures can get back over $2.60 and if November soybean futures can rally back over $5.40.
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].