Low Stocks Open Price Window

January 6, 2013 07:55 PM

Take advantage of market premiums

Will the 2012/13 marketing year be an anomaly in regard to the "short crop, long tail" market price theory? It could because of stock levels, says Ed Usset, University of Minnesota ag economist. "The marketing year is being compared by many to those that followed the drought years of 1988, 1983 and 1974, but those years had higher stock levels," Usset notes. A better measure might be tight stock years, and in those years new crop prices remained strong.

"Producers shouldn’t be
overly exposed on old or
new crop corn and beans."

Producers shouldn’t be overly exposed early in 2013 on old or new crop corn and soybeans with profitable prices on the table. "By early January, I’d want one-fourth to one-third of new crop corn and soybeans on the books," Usset says. Spring prices on old crop corn stand a good chance of being higher than late fall prices, but Usset wouldn’t risk holding too much for too long.

"We’ve settled into an old crop trading range of $7.20 to $7.80; the risk premium is now out of the market," says Frayne Olson, North Dakota State University ag economist. "We’re using less corn and have a better idea on bushels."

Olson thinks good pricing opportunities are likely for old crop corn through the end of January, but corn has limited upside potential. He advises producers to be aggressive sellers if they can lock in $7.70 to $7.80. On new crop, he says to book 20% to 30% of expected production in the upper $6 range.

On new crop there is no reason to panic, says Dan O’Brien, Kansas State University ag economist. He looks for sideways movement through spring, with even the hint of weather problems creating opportunities. His advice: Don’t be more than 50% to 60% uncovered on 2013 expected protection come spring.

For soybeans, forecasters agree that it might pay to have a big chunk of your marketing done early. Moreover, soybeans at the extreme could be either $8 or $22 next fall. The use of put and call options offers particular appeal for the 2013 crop, brokers and economists say.

"Volatility best describes the soybean market," O’Brien says. "Farmers need nerves of steel for marketing in the months ahead, but volatile prices also mean marketing windows, even if brief."

Corn Prices Lower by 2015

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