Nearly every year, pulling the trigger on corn and soybean sales long before harvest will yield better prices than when combines are rolling.
You can take that to the bank at least 70% of the time for both corn and soybeans. Saying history repeats itself in grain markets is not a cliché. It's a fact.
Missouri grower Ed Oram works to get a portion of his corn marketed early. For 2004, he had nearly 20% of his corn marketed through forward contracts in March. And the price was extra high — $2.75-3/bu., based on an early spring $3.10 and higher December corn futures price and a -35¢ local corn basis.
“I like to start out by marketing about 10% of my crop, then scaling up,” says Oram, who farms at Gilman City, MO. “Prices were very attractive early so we sold some at $2.75 and some a little higher.”
He works to average 120 bu./acre at $2.50. “Early marketing helps,” he says. “At an average of $2.50/bu., we can gross $300/acre. That looks pretty good in the end.”
Alan Kluis, executive vice president of NorthStar Commodity Investments in St. Paul, MN, says the best selling opportunities are early in the year or late spring unless there are some major production problems. “Early sales will beat late September sales probably eight out of 10 years,” says Kluis.
Darrel Good, University of Illinois grain marketing specialist, agrees, saying growers are likely “missing some good marketing opportunities” if they don't sell corn and soybeans early. “And with the marketing tools available, particularly corn and soybean options, farmers have less of an excuse now than in the past,” says Good.
Iowa State University extension economist Bob Wisner has continuously monitored corn and bean marketing trends. This year, 2004, with high early-year prices that quickly started downhill as summer arrived, has followed the long-time historical trend for corn and beans.
According to Iowa State statistics from 1981-82 through 2002-03, corn prices hit their seasonal low in October nearly 80% of the time. Harvest pressures and the glut of grain hitting the market normally creates a supply larger than immediate demand.
From October through January, Iowa corn price increased by 11¢/bu., or 5% in 22 years. By March, it increased by 23¢ from October, or 11% from the harvest-time price.
Wisner says the average increase from October through May is normally about 14% above harvest prices.
Like corn, Iowa State data shows soybean prices declined about 70% of the time for every month from June through October, except for July, which still saw prices drop more than 60% of the time.
Of course, no two years are exactly alike. But there are nearly always opportunities to lock in a reasonable price early. Last year was one of them, even though corn and bean prices took unexpected turns upward in the fall and late in the year. December corn futures prices pushed to $2.55 by the end of May. By mid-July they dropped to $2.15.
But supply shortfalls and demand uncertainties worldwide caused a price rebound to $2.45 in September, creating another pricing opportunity. That same uncertainty pushed prices back down to $2.15 by late October. Then prices shot back up to above $2.50. The hunt for $3 corn was on, even though there had been ample chances to lock in a profit earlier in the year.
Soybeans took a similar ride in 2003. November bean futures hit $6.50 in May, then dropped to $5.50 in mid-July. The same questions about supply and demand helped push prices up to $7.50 just after harvest, a move that had forecasters scratching their heads.
Of course, prices for corn and beans continued that upward cycle through this spring, opening the door for rarely seen pricing opportunities for remaining '03 crops and new-crop '04. Yet too many growers left corn and beans in the bin waiting on even higher prices. They were still waiting on $3 corn and $8 soybeans to return after prices were closer to $2 and $5, respectively.
Kluis says the percentage of growers who market corn or soybeans early remains small. “It's probably only 20-25%,” he says. “But those making early marketing decisions tend to be larger growers and more business-like producers.”
Producers looking to become better marketers should follow a set path that allows for some flexibility to keep them from being tripped up.
Ed Usset, University of Minnesota extension grain marketing specialist, regularly posts his own corn or soybean marketing plans on the university's Grain Marketing Center for Farm Financial Management Web site, www.cffm.umn.edu/marketing/.
Growers should consider using a strategy similar to Usset's to establish a clear cut plan based on price and time targets that follow a scale-up path that has 75% or more grain priced long before harvest.
Before any true marketing plan can be set, growers must first establish their cost of production. All inputs must be included. Usset says the cost of corn production in Minnesota is just under $2/bu. The soybean cost of production is just under $5/bu.
Other Corn Belt states will likely see different production costs, depending on the need for irrigation and other inputs.
Once cost of production figures are established, Usset says, crop insurance should be purchased on the portion of a crop to be marketed preharvest in the marketing plan. “I look at marketing 75% of a bean or corn crop through the plan, so I purchase crop insurance on 75% of the crop,” he says. “Some growers might cover 65% of their crop and others might cover 85% of theirs.”
Usset recommends wasting no time in starting a marketing plan. In fact, it should begin about the same time the previous year's crop is harvested, in early October.
For corn or beans, the local crop basis should be measured against the futures price of the following year's normal delivery month, December for corn and November for beans. With that basis in mind, periodic grain sales should be mapped out.
Every grower should measure production numbers when spreading out sales. And Usset says that when the later stages of the marketing plan are reached, “it becomes much more personal.”
He says that one grower may be happy to take the set price. Another might feel the market is moving higher, so he forward contracts at the set price and buys a call option to take advantage of a higher price. A third grower may feel that even though he's reached his price objective, he still thinks the price trend will go higher. In this case, he doesn't market his grain until the trend turns lower. “This shows the flexibility of a good marketing plan,” says Usset. “You could talk to 100 people and get 100 different marketing strategies.”
He uses a similar program in his corn marketing plan with six different marketing periods: November, March, April, two in May and June. Sales are made in either 10,000- or 15,000-bu. increments, based on an average yield of 140 bu./acre. A -50¢ basis is also used. He encourages growers using that plan to avoid any sales below $2/bu., or roughly the cost of production.
University of Minnesota's Ed Usset says his soybean marketing plan uses a typical farm of about 530 acres that will yield just over 40 bu., or a total of about 23,000 bu. Seven different selling periods are used: October, January, February, March, April, May and June.
Sales of 2,500 bu. are made for each period. A price target of at least a 20¢ increase is set for each time period.
Here is his 2005 plan, which he put together in early September. He uses a -50¢ basis for his marketing moves.
On Oct. 1, price 2,500 bu. at $5.15 or higher, based off $5.65 Nov. '05 soybean futures, using some form of fixed-price contract (forward contract, hedge-to-arrive or straight futures hedge).
On or near Jan. 25, price 2,500 bu. at $5.35 ($5.85 Nov. futures), using some form of fixed-price contract.
On or near Feb. 24, price 2,500 bu. at $5.55 ($6.05 Nov. futures), using some form of fixed-price contract.
On or near March 25, price 2,500 bu. at $5.75 ($6.25 Nov. futures), consider options or a trend system.
On or near April 7, price 2,500 bu. at $5.95 ($6.45 Nov. futures), consider options or a trend system.
On or near April 22, price 2,500 bu. at $6.15 ($6.65 Nov. futures), consider options or a trend system.
On or near May 23, price 2,500 bu. at $6.35 ($6.85 Nov. futures), consider options or a trend system.
The majority of the sales are scheduled for March, April and May, based on historical seasonal price trends. “I also include January and February pricing, due to the increasing production situation in South America,” says Usset.
Of course, prices may not reach those particular levels. Strategies should change. “Ignore decision dates and make no sale if prices are lower than $5.15 local cash price or $5.65 Nov. futures,” Usset's plan says.