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Not Your Typical Year


I think we all have a sense of the typical year in grain marketing. It starts at harvest with bumper crops and hedge pressure pushing corn and soybean prices lower. By the end of the calendar year, prices stabilize as market focus shifts from supply to demand.

In the spring we get planting and the “too-too” season – prices rise because the start of planting is too early (or too late) and the weather is too hot (or too cold) and the ground is too dry (or too wet). Finally, favorable summer weather makes earlier crop concerns fade into the background. Corn and soybean prices trend lower, as the market anticipates another bumper crop.

This is notyour typical year. It started in the spring. For only the second time in 20 years, cash prices for corn and soybeans in May were lower than harvest prices. Favorable weather promised even lower prices during the growing season. It was nothing but disappointment for farmers with grain in storage and a new crop developing in the field.

What could break this frustrating downtrend in corn and soybean prices? Wheat! Here’s a crop that ended last year with the highest U.S. stocks-to-use ratio in nearly 25 years. Wheat reminds us that we deal in a world market. The problem started in Canada, where a wet spring prevented the planting of many acres. That was followed by a terrible drought in Russia. This proved to be a powerful one-two punch and, despite a glut of stocks in the U.S., wheat prices soared. Starting in late June, the price of Chicago December wheat futures went from under $5 to over $8/bu. in just five weeks.

Corn and soybean prices responded slowly at first. After all, we still had our sights set on record crops in the U.S. Corn prices started a serious surge in late August, fueled by the emerging realization that this was not to be another record-setting corn yield. Higher wheat prices and so-so yields were the one-two punch in corn. For just the second time in 15 years, Chicago December corn futures traded higher on Oct. 1 than the previous May 1.

Higher prices can feel like a problem for farmers who made pricing commitments too early and too cheaply. Look forward – higher prices also create opportunities. I suggest developing preharvest marketing plans for 2011. December 2011 corn futures have traded above the $5 mark, a profitable sale for nearly any corn farmer. Ditto for November 2011 soybeans above $11/bu. This is not your typical year and these are not typical opportunities.

Tendencies vs. certainties

Price patterns over the past year are almost a mirror image of long-term averages. An atypical year like this always begs the question: Are seasonal patterns still relevant? Is it possible that the age of ethanol and massive investment funds permanently changed the market?

Historical trends and seasonal patterns are still relevant because these trends are rooted in the production cycle of spring planting, summer development and fall harvest. Unless or until we begin planting in January and harvesting in July, I will pay attention to historical trends.

It is important to remind ourselves that seasonal price patterns represent tendencies and not certainties. Because they are only tendencies, I believe that seasonal patterns should be a secondary consideration in pricing decisions. Of primary consideration in grain pricing should be what works for your farm and business.

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