Stay open and flexible as you look at old crop/new crop profit spreads in the coming year
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. As you prepare your marketing strategies for the new year, keep the following advice from these 15 experts close at hand.
Grains will be a tale of two markets. This year’s historic drought resulted in extremely tight 2012/13 corn and bean stocks, which should provide underlying support as we move into the new year.
A subpar soybean harvest earlier this year left South Americans with fewer exports. Support for soybeans should last into the first quarter, when—barring a major South American weather event—a record crop will hit export markets.
Corn has the tightest stocks-to-use ratio since 1995/96, which likely means big swings in cash and basis markets as end users scramble to get physical commodities. This could last until we are confident of trend-line production for next year’s corn crop or more evidence of demand destruction surfaces.
Old crop corn and soybeans will see extreme volatility in the months ahead.
For those who are willing to hold their crop for basis gains, hedging futures and waiting for the tight stock basis situation to play out will offer decent profit potential.
For the 2013 crop, the market continues to offer profit opportunities. Take advantage of them. If you prefer to maintain some marketing flexibility, use futures and options instead of the cash market. For those who do not want to deal with the Chicago Board of Trade, cash prices are still an attractive option for next year’s crop.
Corn and soybean prices are expected to be highly volatile. With low ending stocks, there’s little vroom for downward production adjustments or increases in usage.
The South American growing season is underway, and it’s possible we’ll see record soybean production. Weak demand for corn exports and a potential increase in U.S. soybean yields offset bullish trends. With record exports, Brazil corn is displacing U.S. corn in some markets. China could surprise the market, if its corn crop falls short and demand grows faster than projected. On the other hand, if China’s appetite for soybeans slows, U.S. exports could fall short.
- Mid-November 2012