Choices abound in postharvest marketing. You can make it simple with a cash sale of grain at harvest, or you can complicate the same decision with a vertical call options strategy – buying an at-the-money call and selling an out-of-the-money call to create a price window.
Simple or complex, I think we can agree on the most popular of all postharvest strategies: Producers with on-farm storage like to store grain and wait for higher prices in the spring.
The “put it in the bin and wait” strategy is successful over time. In three of four years since 1990, Midwest corn and soybean producers could count on higher cash prices in spring than they had at harvest.
On average, cash prices rise about 15% from spring to fall, or 30¢/bu. in corn and nearly 80¢/bu. in soybeans. Recent results are even better, with cash price increases of $1 or more in both crops. (All figures are based on monthly average Iowa corn and soybean prices received by farmers as reported by NASS.)
A one in four chance of lower cash prices is not a rare event, but consider two points that soften the blow.
First, these down years are disappointing but generally mild. Since 1990, in corn only four years showed lower cash prices in May, but only one year (2004-2005) showed a decline greater than 10%. Over the same period in soybeans, cash prices declined from October to May in five years. Again, in only one year (1998-1999) did prices decline more than 10%.
The other interesting aspect of these down years that softens the blow is the rarity of a cash price decline in both commodities in the same year.
For producers with both corn and soybeans in storage, a disappointing price decline in one crop is often offset by a price rise in the other. The 2004-2005 crop year was a case in point. It was not fun to watch the value of your corn decline nearly 25¢/bu. from harvest to spring, but it helped to know that your soybeans increased in value by 50¢/bu. over the same time period.
In fact, since 1990 in only one year (1997-1998) did both cash corn and soybean prices decline from harvest to spring. This finally brings us to the current crop year and, unfortunately, it’s shaping up to be another one of those years. As of late March, cash corn and soybean prices are about 30¢ and 50¢/bu. lower, respectively, than harvest.
I have two thoughts for producers who are feeling the pressure with unpriced grain in storage.
• First, I hold out hope for a spring rally (they happen!) and a second chance to sell last year’s crop at a level close to the harvest price. But don’t get too proud and don’t use planting season as an excuse to ignore the problem. Write down a new set of price objectives for this spring and “git-r-done” (apologies to Larry the Cable Guy).
• Second, don’t let disappointment cloud your judgment and forget the 11th Commandment of Grain Marketing: “Thou shall not hold unpriced corn or soybeans in the bin after July 1.”
I don’t think that a stubborn approach is a winning approach to the difficult task of pricing grain.