Pre-harvest grain marketing tips
By KRISTIN DANLEY-GREINER
Between the unfavorable planting conditions, uncooperative weather and trade issues, farmers are concerned about netting feasible prices for their corn and soybean crops. In fact, many fear they won’t break even this year.
DTN lead analyst Todd Hultman led a webinar mapping out how farmers can grasp higher prices for their grain this fall and into early 2020. According to Hultman, in 21 of the past 27 years, cash soybean prices traded below the U.S. Department of Agriculture’s production cost estimate, most recently in 2018.
“It’s important to know your seasonal patterns in order to get a good harvest price, which starts in May when cash prices are typically higher. Old crop corn sales must be done by early June,” Hultman said.
From 1961 to 2018, corn seasonal influence peaked in May with a 1.08 percent increase. From Nov. 30 to May 31 in the years 1994 to 2019, prices steadily rose past $9 per bushel. While it didn’t increase every single year in that timeframe, Hultman said there was a strong tendency toward that rise in case prices from November to May 19 out of 25 years.
“You can gain 36 cents per year or six cents per month with 19 years of gains and seven years of losses. If you store your corn yourself in your own bins at two to three cents per year instead of five to six cents per year at an elevator, that’s where owning bins pays off and can be a benefit in helping you get better than the prices offered at harvest time,” he said.
If all of a producer’s grain heads to the elevator at harvest time, an extended price contract sets the basis and that can be “very large.”
“Can any strategy help mitigate a wide basis? Not that I know of. I would go to an elevator that offers those contracts and discuss options, but I would guess that they’re not going to lock in a narrower basis earlier in the year with this kind of a contract. I don’t see why you’d give up corn at the low point of the season and give up that wide basis, but you also won’t pay storage from month to month, so there can be a bit of a benefit to giving up the potential basis because you’re not paying an elevator for storage,” Hultman said.
From October to February is when the markets typically see the basis narrow as supplies become more scarce. Soybeans have a similar pattern as corn in that old-crop sales need to be done by July 1. The low end is early October and you should be making some forward cash sales on soybeans no later than July 1.
“This year, though, was the worst planting situation we’ve had in some time and a little tougher to predict. Most years, though, we don’t have that kind of a challenge,” Hultman said. “The trade dispute is currently disruptive to pricing. In 26 years of owning cash soybeans from 1994 to 2019, there’s only been a 20.66-cent increase in those 26 years and it has dropped going into 2019 and now.”
“It’s expensive to hang onto cash corn with a drop of $7.41 in 26 years. It’s gone down every year, dropping 29 cents per year. Eighteen years we lost and only eight years we gained. It’s very expensive to hold cash corn past May 31. If you’re in a situation where you’re holding cash corn or soybeans, let this be the last year that happens,” he said. “Owning cash soybeans past the 30th is similar to corn. It’s dropped $18.61 in the past 27 years, losing 72 cents per year with 16 years of losses and only 10 years of gains.”
Hultman said it’s important to recognize that no one is good at predicting prices because the markets are so uncertain. But high prices always accompany bullish expectations and producers need to take advantage of those prices, he said.
“Instead of trying to predict prices, as the question ‘Is this a good selling opportunity for my farm?'” he said. “Use maps to check bids and basis in your area and set up alerts to notify you when it hits your goal.”
For example, when the 2018 corn crop was sold by May 28, 2019, Hultman said there was a $4.07 average futures price. The 2019 crop had one-fourth of it sold on May 20 and one-fourth of it sold on June 21, netting a $4.32 average future price.
“So take advantage of those early sales,” he said. “Then store the remaining 50 percent of corn production as the better choice this fall. There would be an exception and that’s if the corn crop turns out to have problems and it’s smaller than expected and we get an unexpected rally late in 2019. If I were you, I’d map out a target price in your head of what would look good for your farm at this time with the possibility that you might see that this fall or winter. Otherwise, you’ll be storing the remaining 50 percent and hoping for better prices between now and May 31, 2020,” he said. “For soybeans, one of the years where cash bids don’t reach cost is due to China’s tariffs but remember to include trade aid. Storing soybeans has more bearish risk than usual in this trade situation. Consider being out by February to reduce risk exposure. Typically, those cash prices will get a decent improvement from the harvest low, especially with harvest being later.”
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