When is it a good time to sell grain?

Weather and USDA supply/demand estimates have contributed to volatile market price action the past few weeks. While attending a national conference for extension specialists and county agents, I received several questions that can be summarized into two questions: (1) what do you think yields (production) will be? And (2) will corn prices make it back to $4.00? My answer is, I really don't know! I've seen some of the Corn Belt and in many areas the crop looks very good. In other areas it can be described as at least ok. But in a few areas, there are drought conditions making yields lower in these areas. Overall, I really don't know what yields or production will be. Most of us will have to rely on upcoming USDA crop production estimates. Corn price, along with soybean and wheat prices, will depend on production prospects along with other supply/demand factors. In many cases, what those that ask the questions about yield or price prospects really want to know is: Should producers wait to make sales in hopes of getting higher prices? However, these are usually the wrong questions to be asking.

Perhaps a better marketing question to ask is: When is it a good time to make grain sales? Trying to sell at the high is nearly always just luck and attempting to do that is often described as a fool's game! However, market analysis and paying attention to market signals can provide clues for when it is a good time to make sales. The following are examples of some of these clues that can help make selling decisions.

It is usually a good time to sell when:

• prices are near historic highs or current year futures contract highs,
• prices are at or above projected prices ranges for the marketing year,
• upside potential appears limited, there is significant downside price risk,
• the seasonal trend is for lower prices,
• basis is strong or at least expected to weaken, or
• prices generate a favorable return.

Other market signals are: market carry, changing supply/demand factors, and technical signals (market trends, etc.).

Is now a good time to sell:

Corn?

• Although December '07 corn futures have traded nearly $1.00 off of recent highs, prices remain at levels occurring only about one-fourth of the time in the last 35 years. Current price levels rarely occur in nearby futures at harvest time.
• New crop cash bids at most Missouri locations are priced within USDA projected 07-08 corn price range, but a few are near the bottom of the range.
• Upside potential may result from the need to bid for 2008 acres and any production disappointments could push prices back toward highs. Retracements to $3.85 or $4.00 (50 percent and 62 percent technical retracements) are still possible with weather concerns and strong demand for corn even if prices don't return to previous highs.
• Large acreage and potential for large production with increasing carryover suggests possible downside risk at these prices. But downside may be limited because demand is strong with more production needed in year ahead for ethanol.
• The season price trend is usually down after the crop reaches the pollination stage.
• Weak new crop basis suggests weak cash demand and lack of storage availability are contributing to cash prices that are in lower part of expected price range. Stronger basis in old crop bids suggest active current demand. Ethanol plants and large corn users are bidding for deliveries, which are reflected in some new crop bids as well.
• Prices near $3.00 should generate profits unless serious production problems reduce yields.
• Many technical signals (broken uptrend, short term down trend, broken technical support, etc.) suggest limited upside potential with numerous areas of strong resistance to limit up moves.

Soybeans?

• Last week November '07 soybean futures prices exceeded $9 before falling back into the $8.00 range. While well off the highs, historically these are still high prices and are price levels rarely available at harvest time.
• In spite of the sharp price break, Missouri new crop cash bids remain within USDA's projected 07-08 soybean price range.
• Higher price potential may result from reduced acres and tightening of carryover supplies. Poor weather into August could push prices higher.
• Lower price risk due to large world supplies and market signal for South America to increase production. In addition, the soybean/corn price ratio of about 2.6/1 heavily favors soybeans and is not likely to continue due to strong ethanol demand for corn and the need for increased production in 2008.
• The seasonal trend tends to be toward lower prices from mid-summer into the fall harvest season as production prospects become better known.
• Weak basis for both old and new crop cash bids suggests weak cash demand for soybeans.
• Prices at $8.00 generally represent rare opportunities for significant profits.
• Broken short term uptrend is a technical signal that the price trend may have reversed and is a sell signal. Market carry does not offset storage costs, suggesting that delaying sales and storing may not pay.

Wheat?

• Chicago Board of Trade nearby wheat futures prices have been higher than current prices only twice before, in 1974 and 1976.
• In spite of weak basis, current Missouri soft red winter wheat bids are within USDA's projected price range.
• With current prices near historic highs, higher price potential would appear to be limited.
• Although world and US wheat supplies are expected to decline, prices at lofty levels tend to ration use and encourage production increases throughout the world suggesting downside risk.
• Season trend for futures prices tends to be somewhat higher following harvest, but Missouri wheat basis tends to weaken as corn and soybean harvest approaches. The weaker basis, along with storage costs, may more than offset any futures price gains.
• Basis is weak and not likely to improve anytime soon.
• Unless yields were a complete "bust," current prices should offer good profits.
• Market uptrend remains intact, suggesting higher prices until the market signals the trend is over.

After looking at some of these market signals, they offer clues for an answer to the sales questions. Is now a good time to add to pre-harvest sales or make sales if none have been made?

For wheat, the answer is probably yes. Prices are historic highs with limited opportunity to capture basis gains anytime soon. However, if you are confident the uptrend will continue, watch market signals closely for a change in trend.

For soybeans, the answer is maybe yes. Although the critical month of August is still ahead, prices reversed sharply on changing weather forecasts. Prices are at historically high levels and likely should be captured for a portion of expected production, especially if no new crop sales have been made.

For corn, the answer is maybe not, especially if some sales have already been made. Prices have dropped significantly and the decline may have been overdone considering the prices of soybeans and wheat along with the underlying strong demand. However, there is downside risk and, if corn must be delivered at harvest time, making sales at current prices may avoid harvest time low prices.