| April 16, 2010 | Archived Issues |
What Happened To Seasonal Trends?
Observing the patterns of seasonal price trends has always been useful to help plan for the timing of pre-harvest sales, especially early in the year before much is known about new crop supply/demand fundamentals. These patterns suggest that spring prices generally offer (about 65% to 70% of the time) an opportunity to lock-in prices that are equal or higher than what will be offered at harvest time. In most of these years, December corn and November soybean futures prices have recovered from winter time price lows and trended upward into planting time. Planning to make sales during this seasonal early spring price strength is usually a good strategy for pre-harvest crop sales. Although prices do not always increase in the spring, significant price declines from winter into to spring are unusual. But they do occur. In the last twenty years, prices have declined about 15% of the years for corn and 20% of the time for soybeans during this time of year. 2010 appears to be another one of those counter-seasonal years.
December 2010 corn futures prices have declined more than sixty-cents per bushel since early January. New crop soybean futures prices have lost nearly $1.30 per bushel, but have stabilized somewhat and are currently about $0.90 lower than in early January. Record 2009 production, increasing ending stocks projections and larger crop acreages intended for 2010 are among some of the factors contributing to these declines. Increasing world grain/oilseed supplies, volatility in energy prices, strength in the dollar and speculative fund liquidations are among other factors credited with contributing to these price declines.
Additional downside corn price risk exists and the counter seasonal price decline could continue. The USDA’s April corn supply/demand projections reduced 2009-10 corn feed use by 100 million bushels. This allowed expected corn ending stocks to increase to nearly 1.9 billion bushels. Although some analysts had expected ending stocks to exceed 2.0 billion bushels (some continue to predict that it eventually will), this is still a large carryover. World corn and coarse grain carryovers are below last year, but the 2009-10 estimates were increased in USDA’s April projections. This increasing coarse grain supplies and large global wheat supplies limits opportunities for improving on disappointing US corn exports. The USDA’s March 31 Prospective Plantings report indicated farmers will increase corn acreage from last year’s 86.5 million acres to 88.8 million acres in the coming year. Depending upon yield projections, this increased acreage causes some analysts to believe that next year’s corn ending stocks could end up well above 2.0 billion bushels and corn prices at some point will begin with a two!
Soybean supply/demand fundamentals have been mixed. Strong soybean exports have supported soybean prices and USDA’s April projections were increased another 25 million bushels. Many analysts had expected USDA’s 2009-10 soybean ending stocks to increase somewhat, but the projections were left unchanged at 190 million bushels. However, large South America soybean production is expected to increase world soybean carryover to record levels. US 2010 soybean acreage is also expected to expand from last year’s 77.5 million acres to 78.1 million acres. With large South American supplies and increased US new crop production, US soybean carryover could increase significantly for the 2010-11 marketing year. This suggests that soybean new crop price rallies may become harder to come by and several analysts forecast prices slipping below $8.00 per bushel.
Current price trends are disappointing, but new crop marketing is not completely derailed at this point. The expectation of making sales on spring price rallies is not working this year. This situation is particularly discouraging if no sales were made earlier at higher prices. However, new crop corn and soybean prices are still at profitable levels in spite of the price downtrends. Marketing plans can and should be adjusted to recognize changing market outlook and to take advantage of alternative pricing opportunities.
December corn futures prices at $3.80 or higher results in cash prices above breakeven for many Missouri producers. With additional downside risk, thought should be given to making some sales or protecting a profit margin. This is especially important if December corn futures prices break below $3.70, which would potentially signal lower prices. These sales could preserve some profits for corn expected to be delivered at harvest and for crops grown on expensive cash rent land with high cash flow risk. Another method of accomplishing this objective would be using minimum price cash contracts or put options. This would provide downside price protection without giving up all of any price rallies that might occur later in the growing season. While option premiums are not cheap ($0.30 to $0.35 for at-the-money Dec ’10 corn puts), they would protect a minimum profit or breakeven and still leave the upside open if prices rally later in the year.
November soybean futures prices above $9.40 are well above the mid $6.00 cash price range many Missouri producers need to breakeven. Since mid-January new crop soybean futures prices have ranged from about $9.00 to nearly $9.50. Sales near the top end of the range would net cash prices near the high end of most new crop soybean price projections ($8.00 to $8.80) and maybe not a bad place to make some pre-harvest sales. A breakout above the top end of this range would signal a move to higher prices. If prices break out the top of the range, additional sales could be delayed using some method of following the uptrend (scale-up sales, trailing stops, etc.). In contrast, a downside breakout below $9.00 would point to lower prices. A downside breakout below $9.00 would suggest adding to sales to avoid having to accept lower prices at harvest time.
So far a seasonal spring price rally has not occurred. But this does not completely rule out the possibility of other price rallies that frequently occur during the growing season. However, the failure of an early spring rally does not mean that prices will not be even lower at harvest. Market plans should be adjusted to protect some profit margins or breakevens to guard against the potential for significantly lower prices at harvest time.