Grain prices went on a remarkable run in the last two months of 2007. Nearby corn futures rose nearly 80¢/bu. from the first day of November to the first 2008 trading day. Nearby soybean futures performed even better - up nearly $2.50/bu.
I'm impressed that the new-crop contracts have maintained a similar pace, with December 2008 corn and November 2008 soybean futures up 60¢ and $2.20/bu., respectively, from Nov. 1 to the close on Jan. 2.
Price increases of 20% or more in a two-month period are not common events. I think this is what we call a bull market.
Higher prices present a multitude of opportunities for grain sellers. Do you still have a bin full of unpriced corn or soybeans from last year's harvest? Sell it now and put a new-year bonus in your pocket.
Maybe you've already made a few pricing decisions on your 2008 crop (too early and too cheap, of course), but you still have over half of your anticipated crop unpriced. Price it today and, in terms of farm revenues, 2008 promises to repeat your great results of 2007.
Have you done nothing to price expected crops in 2009 and 2010? Maybe it's time to get a financial planner involved to help you manage for the prosperous years.
On the other hand, maybe you shouldn't price any grain today. After all, the trend is your friend and the trend in prices is higher. How high can these markets go in 2008? Can we establish a realistic expectation for corn and soybean price increases in the year ahead?
FORMING REALISTIC expectations in a strong bull market is important because unrealistic expectations can be dangerous: “I've always wanted to sell $18 soybeans.” Unrealistically high price objectives can put your marketing plan in neutral as you patiently wait for $18 beans.
To set realistic expectations, let me suggest an approach based on historical price changes, but not wedded to historic price levels. The tables show new-crop corn and soybean futures for three remarkable years since 1990. These years had the greatest price rise from Jan. 1 forward in the delivery year.
For example, last year (a remarkable year) the November 2007 soybean contract increased $3.40/bu. from $7.26 on Jan. 3 (the first trading day in 2007) to a high of $10.66/bu. According to my tables, the three-year average price rise for corn and soybeans in these remarkable years has been $1.02 and $2.75/bu., respectively. Add these figures to our Jan. 2 market closes, and we get my definition of realistic price objectives for 2008: $5.82 for December 2008 corn and $14.73 for November 2008 soybeans.
Now that we've had our fun with a little price history and math, do yourself a favor and try not to take these figures too seriously.
A grain marketing plan that is based on price objectives alone is flawed. In my next column I will introduce you to the use of decision dates. Once you understand how decision dates work in the execution of a marketing plan, you'll understand why our answer to the question of “How high for prices in 2008?” is not a very important piece of a solid marketing plan.
Ed Usset is a grain marketing specialist for the University of Minnesota Center for Farm Financial Management (CFFM). He can be reached at firstname.lastname@example.org.