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Corn+Soybean Digest

October - A Month Of Decisions

Marketing soybeans in the 1970s and '80s was much easier than it is in the '90s. The seasonal price pattern of bottoming in October during harvest and peaking in May, June or July of the next year has worked most years. But using that strategy the last two years was an expensive marketing mistake. In fact, in 1997 and '98, nearby soybean futures peaked the second week of October.

In 1998, and again this year, it has become even more complicated. Now, producers not only have to plan when to sell their soybean crop, but also when to lock in the lowest posted county price (PCP) and the highest loan deficiency payment (LDP).

Three key factors have changed the market, causing old seasonal patterns to be unreliable:

1) Farmers are doing a better job of marketing. The old pattern of dumping the crop at harvest when futures are usually low and basis levels at their widest has been replaced by more disciplined scale-up selling. Grain elevator managers report more phone calls on the days that corn and soybean futures rally than on the down days.

2) Better and more timely market information exists today. Most farmers have a DTN and/or access to the Internet. The old days of driving to the elevator to learn market news and prices are long gone. Farmers, end users and domestic and international grain traders who need to buy cash grains all have instant news, quotes and analysis available.

3) Competition from South America is growing. As South American soybean production has increased, the price pattern for soybeans has changed. World soybean buyers are never more than six months away from another crop, so they no longer panic. U.S. farmers who store their beans into April and May of the following year store into the time when Brazil and Argentina aggressively export their crops in competition with the U.S.

This year, growers have more production and marketing uncertainty than usual. Trying to estimate the U.S. corn and soybean crop size has been difficult for both private and USDA bean counters.

In periods of marketing uncertainty, knowing what you want can be an important first step. If asked what they want to make good profits, most grain farmers would reply, "A big crop and high prices." It's pretty simple. This year, if they want to be realistic, the answer is different. In the current market situation, this is the ideal profit combination:

* First, prices need to drop very low with a wide basis into harvest. This would set up the lowest PCP and highest LDP possible.

* Second, prices need to rally higher into March, June and July 2000. From these extreme lows it would be easily possibleto see corn futures rally 50 cents/bu and soybeans over $1/bu.

* Third, basis levels need to improve from 60-70 cents under in the western Corn Belt to 20-30 cents under. In the eastern Corn Belt, basis levels could improve from 30-40 cents under to 5-10 cents under. Under this scenario, low prices now and better prices later can result in great profits. Lower prices do not have to hurt farm income; it all depends on the marketing and merchandising decisions you make.

What should you do in October? If November soybean futures rally to $5.60 or higher in mid- to late October, and cash prices get above your county loan, make additional soybean sales and bring cash sales up to 50% or more on your 1999 soybean crop. If prices drop sharply, and November soybeans fall to $4.50 or less, get ready to take your LDP and watch the ideal profit combination above unfold.

Lower prices don't have to hurt your farm income. It all depends on the marketing, LDP and merchandising decisions you make

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