In the second story of our three-part series, bears explain why crop prices may fall in 2013.
The nation’s top crop analysts are spread across the marketing map, from extremely bullish to extremely bearish, when it comes to corn and soybean prices. Opinions vary on how producers should protect themselves from market fluctuation, although many suggest using put and call options as an insurance policy on both ends of the price spectrum.
Though bulls outnumber bears in this year's survey, the bears make a compelling case that crop prices may fall from last year's record highs. Stocks may well rise if production in the U.S. returns to normal levels and foreign source continue to make gains. The bears' best advice -- sell what you have and hedge your 2013/14 crop.
Click below to read other installments in this series:
Bulls Predict Repeat Performance for Crop Prices in 2013.
Moderates: Prepare for Upside Profits and Downside Risk in 2013
Weighing the Big Disconnect
Crops this year ended up better than we feared, which created higher than expected supplies. There is a big disconnect between the old and new (2013) crop. With corn trading in the $6.80 to $7.50 range and the potential to fall to $5.80 by June, I’d sell now. Corn above $7.25 and basis nearly 50¢ above the board is a good time to sell; I wouldn’t store.
However, this strategy all changes if you expect adverse weather in the coming months. Then you would protect yourself on the upside with a call option. Many see the potential for corn to hit $8 to $9 per bushel based when compared to similar supply years such as 1995, but 2012/13 is not all like 1995.
The key difference is inflation in grain prices. Normal weather could give us 2 billion bushels in carryover by next fall and a huge drop in prices. A similar situation exists in soybeans.
Globally, anything approaching normal weather in 2013 will boost stocks and prices will decline. Old crop corn and soybean stocks are tight, but by next fall, soybeans could easily be $12.50. The biggest price risk for both crops is what happens to planted acres next spring.
Issues are at play in the markets that go far beyond supply and demand fundamentals. Hedge funds at the moment are largely absent, and to drive prices of corn and soybeans higher, they would have to re-enter grain markets. This is a huge factor.