Remember back in January when putting the 2002 corn and soybean crop under loan was an easy way to generate some cash flow — and still keep the door open for higher prices later in the marketing year?
For many producers, not making a selling decision then turned into a big marketing and financial mistake.
The Soybean Loan Maturities Chart for 2001 and 2002 shows that more than 35 million bushels of soybeans were sold into the market in August of 2003, and an additional 30 million bushels will come out during the month of September. In October — right during soybean harvest — more than 25 million bushels will be forced onto the market.
The Corn Loan Maturities Chart shows 175 million bushels of corn coming out in September and a whopping 215 million bushels during the month of October.
In large crop years farmers will plan a way to hold that harvest into next year. The old-crop corn is often sold into the local cash market to make room for the new crop. Anytime farmers are forced to sell a lot of corn and soybeans in a short time period, prices are forced to move lower.
It's the old-crop 2002 corn and soybean crop that's likely to put in a major low in the markets prior to the 2003 crop harvest.
If you have corn and soybeans under loan you'll need to monitor your Posted County Price (PCP), what your cash corn and soybean bid is and what the bids are ahead for delivery later in the year.
Wait until futures have a higher close (2-3¢ on corn and 5¢ or more on soybeans) as your signal to lock in the Loan Deficiency Payment (LDP).
At this time the cash market is higher than bids out 30-60 days later in most locations. So just locking in the LDP and then holding the inventory with no risk management plan could make a bad marketing decision even worse.
Make sure you avoid making the same mistake in 2004. Taking out the nine-month loan is better than selling on a wide basis at harvest. But those bushels should be sold using a disciplined marketing game plan, just like the rest of your crop. If you can't pull the trigger, find someone to make the sale for you.
Our current outlook for corn and soybeans is for an early low followed by an extensive base into 2004. For corn farmers the combination of a large LDP with a large carrying charge into next year offers an excellent profit combination. The December Corn chart shows good support at $2.05-2.10 with resistance at $2.25-2.30.
Soybean farmers will want to lock in the largest LDP possible early in the soybean harvest. Then watch your bids for delivery into December 2003-January 2004. The November Soybean chart shows good support at $5 and resistance at $5.30-5.40. With the current futures alignment, holding your 2003 crop in the cash market into the Southern hemisphere growing season looks like the wrong merchandising move.
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: aginvestor@agmotion.com.