This has been a long, cold winter, but cheer up. March brings the start of the spring “too-too” season for marketing new-crop corn and soybeans.
Among the strongest seasonal price trends I have ever studied is the tendency for December corn futures to decline from planting season to harvest. The accompanying figures say it all. The graph clearly shows higher new-crop futures prices in spring vs. fall. The table shows specific results for each year since 1990, comparing December corn futures on May 1 and Oct. 1.
Over the past 19 years, December corn futures prices traded lower from planting to harvest in 15 of 19 years (nearly 80%), by an average of 30¢/bu. Similar data yields similar results for November soybean futures, but the seasonal trend is not quite as strong; futures traded lower in 13 of 19 years (68%), by an average of 27¢/bu.
THE CHARTS EXPLAIN why I urge producers to sit up and pay attention to new-crop pricing opportunities in the March-April-May time period. It also explains decision dates — dates when I commit to pricing a portion of my new crop if prices exceed production costs — in my preharvest marketing plans and why these dates are scattered in the March-April-May period.
Can I explain this tendency for higher new-crop prices in the spring? Crop production is unique and important. Unique because we get one chance each year to get it right, important because this is food and feed and vital to our survival. This unique and important status translates into an anxious market during each planting season.
This year the temperature is too hot (or too cold). That year the soil was too wet (or too dry). Still another year our planting progress was too early (or too late). The too-too season is a time of anxiety that manifests itself in higher prices in the spring.
Then again, the explanation may be as simple as the natural tendency for grain futures prices to display positive carrying charges (e.g., the December contract trading at a premium to the May and July contracts in the spring). Carrying charges often erode over time; deferred contracts seek the lower price level vacated by the expiring nearby contract. I suspect that both of these factors contribute to the too-too season.
It's important to remind ourselves that the too-too is a strong seasonal tendency, and not a certainty. Nothing is 100%, but spring is near and this tendency is too strong to ignore. Are you prepared to price some grain this spring?
Goodbye winter. Hail the too-too season.
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.