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Corn+Soybean Digest

Bigger Triggers

Traditional seasonal marketing trends have long been trusted guides for writing an effective marketing plan. But in this age of high volatility caused by the ethanol explosion, fund commodity investments and other non-farm factors, can growers still depend on history to guide corn and soybean marketing decisions?

Dwight Sanders,agricultural economist at Southern Illinois University, Carbondale, says there will likely continue to be wild daily market swings.

“It's true that activity among index funds and other investors has undoubtedly grown in the last two years,” says Sanders. “However, there is no real evidence that they have impacted price trends in a long-term way. Traditional marketing advice still holds that you sell a portion of your crop at planting and make additional sales through the growing season.”

Sanders adds that in some short-term scenarios, corn and bean markets will see wide variations from seasonal trends.

For example, the USDA Sept. 12 crop report was considered bearish by most when it was issued. However, a large influx of funds and other investments into grain futures sent December 2007 corn prices from about $3.45/bu. in early September to $3.85 by Sept. 28 — a time when prices are normally under pressure.

The increase occurred on the heels of USDA's projection of an increase in ending stocks. Still, supply and demand will virtually always be the bigger trigger for a move up or down in the market, says Sanders. Demand has been higher the past year with the major increase in ethanol production and tighter world supplies. Prices reached new higher plateaus. However, price patterns were close to historical patterns.

Consider the traditional late-June or early July move of corn prices. That's usually when prices peak and start downward. December corn pushed $4.35 about June 20, but dropped by virtually $1 within two weeks. Seasonal price patterns, other than in years of drought and short supply, follow a similar track.

According to price-trend charts from Iowa State University, corn prices declined at least 70% of the time between July 1 and October from 1978 to 2000. From 1996 to 2000, prices were lower in December than in July all but one year. From 2001 to 2006, prices in July were higher than prices in December half the time. So there was a small change in seasonal prices. Prices in May were higher than December prices four out of the six years from 2001 to 2006.

The 2007 soybean prices have differed from traditional price trends, due mainly to the reduction in bean acres, and thus, supply. After November futures rallied to above $9 in early July, they dropped to about$8 in mid-August, before making a huge rebound past the $10 level in late September.

Those movements differed from traditional prices seen by Iowa growers, according to Iowa state statistics. Soybean prices to farmers declined 62-85% of the time between June and October from 1978 to 2000. From 2001 to 2006, prices declined from July to December half the time, and prices were lower in December in three out of five years.

“Again, there will be times when prices increase abnormally,” says Sanders. “Another example is with wheat climbing this year to $9/bu. in the late summer and early fall. It was n't the funds that caused the unusual increase. We just don't have the wheat. At the end of the day it's the supply and demand in the marketplace.”

Because of the traditional price patterns, coupled with new short-term impacts of fund involvement, growers should establish a marketing plan that is spread out over the year, says Sanders. There should be sales made at planting, in late spring and later in the year when basis levels may be more attractive. Delayed sales into the following year on a portion of the crop may also be warranted if higher prices and stronger basis levels are anticipated.

Basis patterns have shown much weaker levels during harvest due to a shortage of storage capacity. However, the seasonal pattern of both corn and soybean basis remains on track with the overall pattern the past four years, says Sanders.

In comparing the four-year pattern of corn basis levels vs. March futures prices in west-southwest Illinois, basis was at -35¢ to -40¢/bu. between May and early September. Although 2007 basis levels have remained lower, there has been little movement from the -53¢ to -60¢ level from May through early September, except for a three-week period in mid-summer when basis dropped to about -70¢.

West-southwest Illinois soybean basis patterns averaged from -40¢ to -45¢ between early August and late September over the last four years. This year, they were lower, but steady at the -$1 to -$1.10 level.

But seasonal corn and soybean basis levels indicate that both crops should garner better prices later this year and in January if growers have the ability to hold grain a few months.

For corn, the seasonal basis vs. March futures jumps from -45¢in early October to about -15¢in December and January.

“Timing is important in selling at the strongest basis level,” says Sanders. “If growers can hold their corn until the first week in December, they should see a 30¢ basis increase on average.”

The same holds for soybean sales. Based on seasonal patterns, growers can expect the soybean basis vs. March futures to improve by up to 35¢ from early October to early December.

“I don't think the historical basis patterns are going to change,” says Sanders.

He adds that for growers who shift their crop rotation to include more acres of corn, soybeans or wheat, they should consider marketing the additional acres early, since growers nationwide might have the same idea — a trend that could easily cause a production glut.

“If you alter your traditional rotation based on price, you need to lock in a price early on those additional acres,” he says. “For example, if you plant 20% more corn, you need to sell that percentage early.”

Sanders says programs like MarketMaxx, which enables growers to test their skills in corn and soybean marketing without facing actual financial risk, should help them improve their marketing skills.

“I encourage growers to use programs like MarketMaxx to help them become better marketers,”he says.

Orderly sales will prevent growers from holding grain too long and facing 2-3¢/bu. interest charges per month, he says, adding that growers should take a positive attitude in marketing.

“Feelings of regret about previous marketing is a problem many growers face,” says Sanders. “The attitude of ‘if I'd only held on to it last year’ can hurt the current year's marketing.”

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