Are you having a hard time making grain marketing decisions? If so, that is understandable. There are many reasons to think the markets are headed higher and there are many reasons to think the markets are headed lower. There are expert grain market analysts who are on both sides, pushing and pulling at the trigger on your grain marketing plan.
Are you a market bear, or a market bull? University of Missouri grain marketing specialist Melvin Brees outlines the reasons for being both in his latest newsletter. He says you are facing a complex and risky marketing challenge.
The market bulls are looking at:
Strong demand, the potential for further production losses in a late harvest, strong export markets, a weaker dollar, higher energy prices, investment funds adding to long futures positions and a number of other factors support the arguments for continued uptrends in corn and soybean prices.
The market bears are looking at:
Record crop yields, large total crop production, more than adequate ending stocks, financially squeezed livestock producers, expected production increases in South America, large world wheat supplies, economic worries and other fundamental factors suggest that considerable downside price risk exists.
For corn, December futures are flirting with the $4 mark, pulling cash prices into the upper half of USDA’s projected price range for the new crop. That range is $3.25 to $3.85, but the $3.65 midpoint is still well below the $4.73 high water mark for December futures that was established last June. Currently, a substantial amount of the crop remains in the field and the USDA crop estimate for November declined modestly. Brees says when the crop is finally in the bin, watch for a stronger basis, all the while the market carry pays you to store corn. While that may bolster your spirits, reality says we still have a near record crop and demand remains driven by a weak economy, weak energy prices, and traders that are already long in owning corn futures.
For beans, Brees is puzzled by the lack of any carry in soybean futures, which provides no incentive to store. Cash soybean prices are already in the upper half of the USDA price range of $8.20 to $10.20. January futures, once below $9 are now flirting with the June high of $10.57. Brees says the strong soybean market may be related to the export market spurred on by the weak dollar. But he says global production is increasing and much of it will come onto the market in the next several months.
Should you sell? That answer may depend on whether you can show some profit in the current price structure. Particularly for soybeans, there is no price advantage to store unpriced and there is downside risk with the South American crop coming to the market. Brees says, “In complex and risky markets, it is hard to argue against making profitable sales at good prices!”
What is the price trend? Both corn and bean markets are in uptrends and technical marketers will look for signals that the trend is about to change. It is better to sell in an uptrend than it is to sell in a downtrend. If you are watching the trend, watch for those signals such as chart patterns or changes in the direction of moving averages, but also have some price objectives in place that you have discussed with your elevator manager. With an uptrend market, ration out periodic sales with “scale up selling.” Or sell at every incremental rise in the market. But be ready to implement “Plan B” if the market turns before you have sold what you want to sell.
Brees suggests using price targets to market grain at specific price levels, and using price traps to sell grain and protect against a downside collapse. Such a strategy allows you to capture higher prices in an uptrend and protects against the downside risk. Such sales can be achieved both on the futures market by using a commodity broker or on the cash market by working with your elevator manager. In addition to the targets and traps is the trailing stop. Work with your broker or cash merchandiser to place a stop just below the market, and as it rises, the trailing stop moves higher. But if the market collapses, the trailing stop will trigger your grain sale just below the peak.
Such a plan can be worked into your marketing plan, and protects your revenue if an uptrend reverses. After all, there are good reasons for the market to go up and good reasons for the market to go down.
Summary:
There are many positive factors that have pushed corn and soybean markets higher, but there are also many factors that indicate prices may be higher than they should be and are in need of a correction. Currently, prices for corn and beans are in the upper half of USDA’s estimated price range for the year, and may provide some profitable sales for many Cornbelt farmers. Those sales can be spread out while the market is still in an uptrend, but marketers should be aware the trend could change, and various risk management tools have to be in place to protect against a loss of revenue.