Last Chance?

Some market analysts rely heavily on historical charts and seasonal trends to make marketing strategy recommendations. Research has demonstrated that selling based on timing of seasonal highs will produce profitable sales in most years. The following twenty-five year average futures price charts for December corn and November soybeans suggest the "last chance" to make pre-harvest new crop sales at above average prices normally occurs in late June or early July. In most years, without serious weather problems, the crop is well on the way to being "made" by early July and prices begin a decline that lasts into harvest time. A marketing guideline has been to have pre-harvest sales in place by July 4th. However, worldwide grain production and use continues to change and expand. Are these 25-year averages still useful as a guide for marketing strategies?

25-year New Crop Futures Charts Prepared by David Reinbott, Southeast MO Extension Agriculture Business Specialist

In recent years (5-year or 10-year averages), new crop December corn futures price in June tend to be higher than prices for the same contract during harvest in October. While not at a price high, the following 5-year average chart suggests that the late June period still offers a "last chance" opportunity for pre-harvest sales. A problem with making early summer sales in recent years then has been less attractive price levels compared to longer-term averages. Additionally, recent year's corn prices have tended to rally somewhat in late August or September and (depending upon the year) sometimes offering an additional pricing opportunity at time when actual production is better known.

5-Yr Ave. Dec. Corn Futures Prepared by David Reinbott, Southeast MO Extension Agriculture Business Specialist

The recent price patterns make pre-harvest corn sales more difficult, especially this year when a number of mixed market signals are occurring. USDA's June Supply and Demand Report made no changes in domestic new crop corn production or use estimates. Projected ending stocks were increased to reflect a cut in old crop (2002) exports that is carried over into new crop year projections. The surprise in the reports was a cut in expected world ending stocks of corn-world corn supplies are becoming historically very tight. This mixture of disappointing U.S. corn exports and further tightening of world corn supplies creates a confusing situation for making sales decisions. Good new crop corn production and continued slow corn exports suggest prices will follow a seasonal decline into harvest. However, production problems and/or stronger export demand could produce a volatile situation in a tight world supply situation with significantly higher prices during a late summer or early fall rally.

Increasing South American soybean production may be changing the new crop soybean seasonal price pattern. The world now has soybean crops of about equal size every six months, resulting in less mid- year concern about U.S. supply during spring and early summer to strengthen prices. In recent years (5-year averages), the late June period has generally not offered favorable soybean pricing opportunities. Average November futures prices have declined into June to levels about equal to average prices for the same contracts later in the year at harvest time. Following this early summer low, strong demand and potential U.S. new crop supply concerns have tended to rally soybean prices into September, often providing a better pricing opportunity than in early summer.

5-Yr Ave. Nov. Soybean Futures Prepared by David Reinbott, Southeast MO Extension Agriculture Business Specialist

The market signals for soybeans this year also are confusing. While USDA's June reports increased expected ending stocks of soybeans, soybean supply remains very tight. Surprisingly strong export demand, even with the large South American crop, has helped keep soybean prices stronger into summer with new crop futures prices approaching contract highs in mid-June. Market action is suggesting that the soybean price pattern might be much different than that of the past five years, especially if new crop growing conditions remain favorable.

The problem with using seasonal averages as a guide to make sales decisions is that no year is average! But average seasonal patterns can provide a guideline of what to expect and updated market information provides clues as to how this year's price pattern may differ. Planted acreage and new crop production will become important market factors to watch and this year's price patterns may not follow those of recent years. Upcoming USDA information to watch is the June 30 planted acreage report--how many acres are actually planted and whether there were any shifts from corn to soybeans because of planting delays. The August production report will be the first surveyed production estimates and will be watched closely along with summer crop tours for crop yield potentials.

The seasonal patterns suggest pre-harvest corn sales should usually be completed in the next few weeks. Spreading out sales, using minimum price contracts or options are examples of strategies that would accomplish this and provide flexibility to capture higher prices should tight world supplies and production concerns produce significantly higher prices later on.

Current demand strength in the soybean market may be providing early summer sales opportunities that haven't been available in recent years. Again flexible sales strategies could "lock-in" early summer price strength and still provide flexibility to participate in a late season soybean weather market that appears more typical of recent year price patterns.

While having pre-harvest sales completed by July 4th may or may not be the appropriate goal for this year, avoiding harvest time price lows is probably still an appropriate marketing objective. Looking at seasonal patterns, why they occur and determining how this year's pattern may be different can aid in making these marketing decisions.