| December 21, 2007 | Archived Issues |
Selling at the High?
It appears that 2007 will end with higher corn, wheat and soybean prices. March 2008 wheat futures are offering the highest prices ever, having penetrated $10.00 per bushel earlier in the week. January soybean futures prices near $11.50 represent the second highest price levels in history, exceeded only by the run to the record high of $12.90 that occurred more than 30 years ago, in 1973. March corn futures prices above $4.40 set new eleven-year highs earlier this week, which is second only to the record high prices of 1996.
Missouri cash bids, as reported by the Missouri Department of Agriculture, offer prices at or above the top end of the USDA's forecast price ranges. Depending upon location, this past Wednesday's, spot soybean cash bids in Missouri ranged from $10.45 to near $11.50. This compares with the USDA's expected average US farm price range of $9.25 to $10.25. Missouri's spot corn bids ranging from $3.91 to more than $4.25 also compare favorably to the USDA's projected price range of $3.35 to $3.95. For those who might have some wheat left, cash bids from $8.60 to more than $9.30 far exceed the USDA projected range of $6.20 to $6.60. New crop (2008 production) cash bids offer corn prices above $4.00 and soybean prices more than $9.50 at several locations across the state. These are good prices!
As good as these prices are, producers may be hesitant to sell if prices could go higher and there are plenty of opinions that prices will go higher. Strong demand, tight domestic and world carryovers, higher oil/fuel prices, a weaker dollar and the attractiveness of commodities as an investment all continue to support grain/oilseed prices. A "battle for acres" is also receiving a lot of attention. Although expected corn carryover of nearly 1.8 billion bushels should be a comfortable amount, increasing ethanol demand means another large crop is needed in 2008. Tight soybean (185 million bushels) and wheat projected ending stocks (280 million bushels), along with strong demand, point to the need for more acres of these crops. Some analysts suggest that this is creating a different market situation than has occurred in the past when prices ran up to ration tight supplies. They contend that, while there is enough to meet current needs, the market is bidding up prices in anticipation of short supplies in the future. This is resulting in a bidding war between soybeans and wheat, crops that need more acres, and against corn, a crop that cannot give up many acres, to encourage more production in the coming year.
It is easy to get carried away with bullish enthusiasm. But remember, this is what often happens in bull markets. In the past, people were bullish and expecting higher prices when the markets peaked and then were caught by surprise as prices dropped rapidly! A number of factors could produce lower prices, maybe significantly lower prices. Fund profit taking or liquidations of commodity holdings, improved production prospects in other countries (especially South America), softening of oil/fuel prices, strength in the dollar or rationing of demand by the current high prices are among some of the potential reason why lower prices could occur. Although there are valid arguments for higher prices, at current price levels, you must understand that there is also a lot of downside risk as well.
For those trying to sell at the price highs, it is almost a sure thing that it won't happen! Price highs are nearly impossible to predict and cannot positively be identified until after they have occurred. By the time a price high is identified, prices may be much lower.
Holding onto the entire crop, hoping to sell it all at or near the high, is likely not a good idea either. Passing up the opportunity to make sales of a portion of the crop at favorable prices means risking it all against the possibility of significantly lower prices.
As the old year ends and the new begins, expect significant price volatility with large price moves down as well as up. Spreading sales and capturing historically high prices is not likely to be a bad marketing strategy. Be prepared to also make additional sales as prices move higher or before a downturn in prices accelerates. Although some sales might end up being disappointing, this reduces the risk of waiting too long and missing out on favorable prices. For those confident that prices are going higher and intent on following prices higher before selling, it may be doable. But, understand that this is not necessarily easy to do and it requires discipline to accomplish it. It is important to follow the markets closely and be prepared to act quickly on market signals that a price high is in or an uptrend is broken. Whatever marketing strategy is chosen, focus on favorable prices or market signals and not on how high prices will go.