Be Alert For Summer Pricing Opportunities

May 26, 2016 12:00 PM

Farmers' heads may be spinning right now as several factors “percolate” the grain markets, according to University of Illinois ag economist Darrel Good – from the size of the 2016 crops in the U.S., to the condition of the South American crop, to uncertainty of future weather impacts. For farmers hoping to sell grain this summer, will they have a reasonable, profitable opportunity to do so?

Good says historically, yields tend to fall below the yield trend line following extremely warm winters--a scenario that’s currently in play.

“That risk may also be elevated by the rapidly fading El Niño event,” he says. “If this assessment is correct, higher corn and soybean prices would be expected this summer, providing a better opportunity for pricing 2016 production.”

But Good adds that the risk of waiting for a summer price rally to more aggressively price grain is a more risky venture for soybeans than for corn.

“First, soybean acreage is likely to exceed intentions so that production could still be large, even with a modest shortfall in yields,” he says. “Second, soybean yields, may be less vulnerable to stressful summer weather than corn yields.”

Additionally, the recent soybean rally has pushed prices relatively high compared to corn prices, and current new-crop prices are high enough already to produce positive returns for owner-operators, farmers with crop-share rents and farmers with modest cash rents, according to Good.

“In contrast, corn acreage may be less than intentions, yields are more vulnerable to adverse summer weather, recent price strength has been modest and December 2016 futures are currently trading only modestly above the spring price guarantee of $3.86 for crop revenue insurance,” he says.

If a price rally occurs this summer, the magnitude of that rally will drive how aggressively to price multiple crops, Good concludes. Farmers should stay alert for opportunities.

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