USDA’s Crop Production – Annual Summary report set the supply side of the 2020/21 crop marketing year. While adjustments to ending stocks can still be made through changes in the demand side of the balance sheets, about half of the puzzle is now complete. After several years of global surplus for both corn and soybeans, annual consumption is expected to continue outpacing annual production. Looking at the supply/demand balance in the US, last year’s sharp increase in consumption, most notably in the export markets, is expected to continue, bringing the stocks-to-use ratio (ending stocks divided by total usage, including exports) to multi-year lows, particularly for soybeans.
Using that stocks-to-use ratio as a reference, we see marketing year 2020/21 corn prices averaging $4.75/bu (range: $3.50-5.80) and 2020/21 soybean prices averaging $11.75/bu (range: $10-13). Please keep in mind that these are just estimates based on the data available at the time of analysis. As new information is introduced to the market, these price forecasts are subject to change. For now, we can still use seasonal trends to gauge the movement of prices through the year.
Looking first at historical December corn futures prices during various parts of the crop cycle, we see a seasonal trend that moves price higher as the planting season begins around early April and concerns about planted acreage and initial crop development (weather) come into play. Once the market feels comfortable with the crop’s viability, usually between mid-June and early July, futures prices begin to decline into harvest season. After a harvest low, we again see rising prices into contract expiration.
We see a similar pattern in the November soybeans futures price. Here, prices begin to rise towards the middle or end of May before falling into harvest, before rising into contract expiration. So, what can these charts tell us?
CME Group, UT Extension
When we think about a pre-harvest marketing plan, we use these seasonal trends to begin pricing next year’s crop by setting price targets and deadlines at regular intervals. It is important to know and use your operation’s breakeven prices (or risk-tolerance level) as your minimum price to make sure you are not inadvertently locking in a loss. You can use also historical data, such as the ones in the graphs shown, to estimate a reasonable maximum price. With a clear path between your minimum and maximum prices, use regular intervals (in terms of both price and time) to take advantage of seasonal trends and to make sure you don’t price yourself out of rallies. At the same time, it’s important not to overextend your sales commitments, particularly before planting. Depending on your operation, booking 25-50% of your crop pre-harvest generally makes sense. Your local Extension office or marketing professional can assist.
Be familiar with the various pricing tools available to you. Some operate on a fixed price basis to lock in a price level while others provide a minimum price floor that allows you to at least partially participate in the upside. Above all, write down your plan…check it often…and keep a record for next year and beyond to help you become more comfortable and experienced with marketing plans.
Finally, in times like this when we see higher than normal prices (on a seasonal trend) at the beginning of the year, justifiable nervousness can be experience when constructing a pre-harvest marketing plan, as well as wondering what to do with old-crop still in inventory. It is important to remember that while every year is different (see the unseasonal price movements in 2020 due to Covid-related shutdowns), studying the market can still provide clues. For example, it might make sense to forward price more grain than normal this time of year because of high prices. It may also make sense for you to weigh your storage costs for old crop vs. what you could get paid for selling today. Or you might price more of your new-crop pre-harvest than normal and/or at an earlier time of year. Again, every operation is different and seek assistance if needed.
In future columns, we’ll provide an updated outlook and discuss post-harvest marketing plans. Good luck this year and stay safe!