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Corn+Soybean Digest

Watch For Season Lows In Corn And Beans

How low can these prices go? And what will signal a possible seasonal low in corn and soybean prices? Those questions kept coming up over and over at the recent Grain Vision seminar in early September.

I could clearly see the different stress levels and attitudes in the farmers I talked with at this two-day conference in southwest Minnesota.

With the great yield potential of Minnesota and Wisconsin farmers who attended the conference, the huge income and profit differences were mainly in how they sold their 2004 and 2005 crops. While some producers were still hanging onto 2004 corn — desperately hoping that some huge rally in old-crop corn would develop — other producers who had sold corn and soybeans ahead were hoping for lower prices into harvest. If so, they could add larger loan deficiency payments (LDP) to their bottom lines.

By the time you read this in mid-October, we'll likely be at or near the seasonal low in corn and soybeans. So, here's what I'll be watching for as signals that the seasonal low is in place.

  • Basis levels begin to improve as commercials start to bid up for cash corn. The normal pattern is for basis to start when the national harvest is at about 50% complete.

  • Spreads can also signal a low. With a larger corn crop, the December 2005 to July 2006 corn spread that was as narrow as 7¢ in July of 2005 has now increased to 26¢. This reflects a larger crop and increased return to storage. This increase in carrying charges is usually a negative signal for futures prices. However, the opposite is also true when carrying charges are reduced. That change in the spread can signal a low.

  • A Friday-to-Friday higher close in December corn or November soybeans can also signal that prices have stopped going down. For a trend reversal to develop it would take a close above the two previous weeks high. Or, it would take a close in November or December in the nearby futures above the previous month's high.

Your Selling Strategy

So what should you do with your corn and soybeans? When I review the alignment of the corn and soybean market I have two different merchandising strategies you should consider.

For corn, think dollars per acre. Right now most farmers are disappointed with the low futures price and wide basis. However, for corn farmers who have trend line or better yields, the combination of good yields, the current large LDP and a huge carrying charge, you can earn by selling for delivery into March through July of 2006. That's when the dollars per acre are acceptable.

This unusual combination of factors should allow you to turn a bottom line profit on each acre of corn, especially if you have some new-crop hedges in place.

For soybeans, the strategy is to take the money and hold on with call options. The carrying charge in the soybean market just barely covers your interest. So the right merchandising decision is to consider selling your cash soybeans, and then retain ownership by purchasing call options or bull call spreads.

Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want information, write:Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].

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