Marketing strategies differ
Producers had less than half their normal percentage of corn and soybeans pre-booked moving into harvest, which places a premium on marketing strategies.
Forget what worked for the 2012 crop and years prior. This is a new universe because getting even $5 per bushel average for corn will take savvy marketing, experts say.
Dale Viktora, a producer in Ellendale, Minn., illustrates the predicament many producers find themselves in. "I have 40% of my expected 2013 corn pre-sold," he says. "Typically, I have 75% by this time and usually sell a year out. If I can get $5.30 or $5.40, I’ll pull the pin."
"I have 40% of my expected 2013 corn pre-sold ... If I can get $5.30 or $5.40, I’ll pull the pin."—Dale Viktora, Ellendale, Minn.
Viktora admits that seems like a lofty goal with cash prices a little more than $4 per bushel. Nationwide estimates show that no more than 20% to 25% of 2013 crops had been sold by early October.
It’s not only a tale of two planets when it comes to corn and soybean strategies, but also what makes economic sense has flip-flopped in less than a year’s time.
"For corn, the market says to store; it has built-in carry for deferred months," says Chad Hart, an Iowa State University ag economist. "For soybeans, it’s just the opposite."
In late September, December 2013 corn futures were $4.50 and July 2014 corn was 30¢ higher, which pays for on-farm storage but not commercial storage, Hart says.
Marketing soybeans is completely different. The market says to sell at harvest or shortly after because of the discount for deferred months.
In late September, November 2013 futures were $13.16, but in sharp contrast to corn, the July 2014 contract was nearly 50¢ less.
"For the first time, Brazil is forecast to grow more soybeans than the U.S. in 2014," says Corinne Alexander, a Purdue University ag economist, citing that as the cause for the price inversion now through next summer. Additionally, the market expects U.S. soybean acres and production to increase next year.
Volatility Shifts. Alexander says that it might make sense for some to hold out for stronger basis if theirs is weak, but she advises against being exposed more than 60 to 90 days.
However, with soybean stocks-to-use less than corn, the oilseed’s price will be far more volatile than corn, says Frayne Olson, North Dakota State University ag economist.
Tight supplies will support soybean prices immediately following harvest, which creates opportunities until early 2014. "There is a lot of risk if you don’t sell then," Olson says. "For producers willing to gamble, late May to July could be another potential selling opportunity."
If South America has production problems, prices could rebound during this period. However, if they bring in a monster crop, there is more risk, explains Olson. He says one way to stay open to the upside but still have some protection is to sell shortly after harvest and use futures or call options.
"For the first time, Brazil is forecast to grow more soybeans than the U.S. in 2014."—Corinne Alexander, Purdue University
Hart thinks cash corn prices will average $4.75 to $5 for the 2013/14 marketing year, offering astute marketers the opportunity to beat break-even costs, but not by much. Breakeven for Iowa is about $4.50. "Producers on average won’t lose money, but it won’t be like the recent past," Hart says.
- November 2013