Sort Out Sales Options

September 7, 2016 02:20 AM
Sort Out Sales Options

By Sonja Begemann and Nate Birt

Storage provides important leverage amid bleak prices

Row-crop producers can get excited about high yields, strong global demand for commodities and steady domestic use of ethanol. Unfortunately, none of those factors are bullish for grain farmers this fall.

“Corn exports are going to top 2 billion bushels for the first time in a decade,” says Ed Usset, grain marketing specialist at the University of Minnesota. “That’s good news. The ethanol usage is good. The demand is a good thing. Unfortunately, demand is good but supply is ‘gooder.’”

 Create a written marketing plan for  fall and know when to make sales  since there’s no guarantee prices will  rise significantly.

Because supplies are larger than demand, farmers are faced with the prospect of relatively low prices extending into 2017. That doesn’t mean sales opportunities won’t emerge. Yet prices won’t swing wildly higher, so it’s critical producers have a written marketing plan and know when to make sales to capture as much revenue as possible. 

“Our ears were perked up for a big disaster, and guess what?” Usset says. “We got the same story we had going last year and the year before.”

Demand for U.S. soybeans can be attributed to a less-than-stellar end to the growing season in South America, the sharp drop in U.S. commodity prices since June and China, which is expected to import a record amount of the crop during the 2016/17 marketing year, notes Brian Grete, editor, Pro Farmer. 

“We’re going to dominate exports until early spring,” Grete says. “The first half of the marketing year exporters are going to sell as much 
as they can.”

Marketing Strategies. Producers who can afford to do so should store new-crop corn to see whether prices will rise in the spring, Usset advises. The average price rise from harvest to spring is between 10% and 12%, meaning corn prices could increase between 35¢ and 40¢. 

“Sometimes we sit back and we see prices go up maybe 40¢, and we’re waiting for 70¢ or 80¢,” Usset says. “That might not be realistic. Develop realistic expectations. There’s no guarantee.”

Basis likely will not be robust because of carryover stocks from the past two years, he adds. “We might get short-term rallies in the basis based on, unfortunately, very low prices,” he says.”

For soybeans, storage is an even bigger consideration, Usset says. Prices could rally from 10% to 15%, creating a $1 gain per bushel compared to a gain of less than 50¢ per bushel if corn rallies. 

“I’m hemming and hawing an awful lot because there’s no guarantee that the higher prices could come or will come,” Usset cautions.

USDA crop conditions show 72% good to excellent ratings for soybeans as of Aug. 14, which drove a pre-harvest drop in prices. Don’t expect the dip to last forever, Grete says. When prices drop, especially in soybeans, China and other importers buy as much as they can at a lower price, supporting a price rally.



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