November 7, 2022
In the last column, my focus was on the price outlook for grain held in storage following harvest. My “similar years” analysis was based on a tight stocks outlook for world ending stocks of corn and wheat, excluding China from the equation. The analysis was promising for producers holding unpriced grain. However, I noted some concerns about already high price levels, war uncertainties and the fact that three consecutive years of strong post-harvest rallies appear to be a rare event.
Let’s turn our attention to next year’s crop. Production costs in 2023 will be higher. A colleague and southern Minnesota producer did the math and estimated production costs for corn at about $5.50/bu. in 2023. The cost of producing soybeans will be about $13.00/bu. With Dec’23 corn futures and Nov’23 soybean futures trading near $6.20 and $13.60/bu., respectively, there is an opportunity to lock-in a profit. It may not be the same healthy profit margin of the past two years, but it would be a profitable sale.
Is it too early to think about pricing the 2023 crop? To attempt an answer to this question, I will again fall back on an analysis of price action in years that share similar market fundamentals. The fundamental that has my attention this month is U.S. ending stocks of corn and soybeans. They are projected to be historically tight by the end of the 2022/23 crop year. Ending stocks of corn are projected to be just 4.4 weeks of previous year’s usage. If the figure holds, it would be the fifth tightest ending stocks situation since 1990. Ending stocks of soybeans are projected to be 2.3 weeks of previous year’s usage, or the third tightest ending stocks situation since 1990. Lower stocks often lead to higher prices.
The question I am posing is simple. With the stocks projection as tight as it is projected to be, does it make sense to start pricing the 2023 crop now, or should I wait for a better opportunity in the first half of the year? My proxy for the first half of the year is May 1.
The accompanying tables show the results for seven corn years and eleven soybean years with an ending stocks situation like the 2022/23 crop year. In corn, the December new crop futures contract traded higher from November 1 to May 1 in 5 of 7 years. In soybeans, the November new crop futures contract traded higher from November 1 to May 1 in 8 of 11 years. The analysis looks promising for producers who intend to defer 2023 new crop pricing until the first half of next year.
Once again, I feel the need to offer a caveat to the analysis. Today, new crop pricing opportunities start at a historically elevated price, and previous “high” priced years (2012/13 and 2011/12) proved to be years when early pricing was the better choice. 2012/13 was a post-drought year. Will 2022/23 be a post-war year?
Similar years analysis is not perfect, but sometimes it’s the best available.
About the Author(s)
Marketing specialist, University of Minnesota Center for Farm Financial Management
Ed Usset is a marketing specialist at the University of Minnesota Center for Farm Financial Management. he authored "Grain Marketing is Simple (It's Just Not Easy)"; helped develop "Winning the Game" grain marketing workshops; and leads Commodity Challenge, an online trading game. He also blogs about grain marketing at Ed's World.
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