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Commodity prices are down across the board, and hard decisions must be made on pricing old- and new-crop grain.

Ed Usset, Marketing specialist

May 21, 2020

2 Min Read
sell old-crop grain, be patient with new crop
JJ Gouin/Getty Images Plus

An old adage says that every cloud has a silver lining. Over the past eight weeks, I’ve been looking for that silver lining. I will keep looking. These are extraordinary times, and call for difficult decisions.

Time to sell old crop

Old crop is the most difficult situation. If you still have unpriced grain in storage, you have about 5 weeks to get it done. Why 5 weeks? Because the 11th Commandment of Grain Marketing says “Thou shall not hold unpriced grain in storage beyond July 1.” This applies to both corn and soybeans. Why, you ask, the bright line on July 1? Let me explain.

Cash prices are composed of two components: the futures price and basis. History has shown a strong tendency for new-crop futures to trend lower from spring to harvest. History has also shown that basis has a tendency to weaken from spring/summer highs to harvest lows. Holding unpriced grain after July 1 is a bet against two powerful trends. Your path to success demands a serious crop problem.

Take a look at the chart. It shows Iowa average corn prices for three different decades, from early May to the end of September. The trend is unmistakably lower. If you insist on holding grain in storage, you are fighting the trend.

weekly-corn-price-history.png

I know prices are low. Corn in northern Iowa and southern Minnesota is trading at $2.70/bu., give or take a dime. We saw similar prices for several weeks during the harvest of 2014. To find lower prices, we need to go back 14 years, to the harvest of 2006. Dreadful, yes, but prices could be lower by harvest. The acres are there, planting progress has been timely and, at least for now, the case for a poor growing season is weak. Prospects for ending stocks greater than 3 billion bushels is just too much corn. Cash prices below $2.50/bu. is a distinct possibility by harvest.

Be patient with new crop

It seems like I should be making an argument for new-crop sales, too. But here I hesitate. If your storage capabilities on farm are limited, you may need to make sales just to assure a home for grain at harvest. However, if you have storage available on farm, I suggest patience. If my approach to old-crop and new-crop sales seem to be contradictory, so be it. New-crop economics are different in one important respect: I’ve got revenue-based crop insurance to help out if sub-$2.50 corn comes to pass.

Time can be a good thing. Time could find a vaccine for a virus. Time could get the economy and the ethanol industry back on track. Time might even get trade with China back on track.

Old-crop sales – you need to get it done. But I suggest patience with new-crop sales.

About the Author(s)

Ed Usset

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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