It appears many producers are putting grain in the bin very aggressively in the expectation of firmer prices next summer. I see a risk developing--we get the planted acres and yield moves back to trend line; Dec 2012 could move below $5 before the September supply/demand report high.
In fact, I believe the risk of an early spring high is extremely high and it will be difficult for producers to price their crop because
(1) it will be well below their expected $7+ cash corn target price and
(2) they will be holding a large portion of their 2011 corn unpriced in the bin.
Suggested Strategy: The tight basis being offered for Dec cash inventory with carry below 20 cents suggests to me that remaining 2011 inventory should have been sold anytime Midwest producers could get close to $6.80. Make plans to sell Dec 2012 corn between $6.10 and $6.25 during March and April via an “in-the-money” put rather than using forward cash sales or futures contracts. This alternative gives downside price protection and allows one to participate somewhat in a May to July price event if a supply reduction event would occur.
Long-term, I cannot stress strong enough my long-term concern for 2013 through 2016. Anyone remember market activity from 1981 to 1985 [after the 1974 to 1980 time period]? Bottom Line: If we are fortunate to get a weather scare event next May to June, I suggest using it to sell expected multiple-year inventory at good profits.
Read more of Bob's thoughts on marketing in the December issue of Farm Journal.
See Bob's previous Farm Journal Outlook columns.
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