What are you waiting for?

Corn futures prices have trended upward through most of October and into November. Corn has made a remarkable recovery in recent weeks even as harvest deliveries were occurring. The combination of higher prices and basis strength suggest strong demand, but there has been reluctance by producers to sell. This raises the question: If prices are historically high and you have been reluctant to make sales, what are you waiting for?

The July 19, 2007 issue of Decisive Marketing, "When is it a good time to sell grain?" pointed out market signals that offered clues for when it usually is a good time to make grain sales. They are:

• 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 favorable returns.

Other market factors to consider are: market carry, changing supply/demand estimates, and technical signals (market trends, etc.). ( When is it a good time to sell grain? - July Issue)

Do market signals suggest this is a good time to make corn sales?

• December 2007 corn futures prices, although down nearly 60 cents from the high last June, are trading at price levels that have only been exceeded five times in the last 35 years.
• With the exception of some locations in north and northwest Missouri, cash corn bids are in the mid to upper one-half of the USDA’s projected 2007-08 corn price range ($3.20 to $3.80). Prices at a few locations exceed $3.80!
• The outlook for higher prices is mixed. The 2007 corn crop is expected to be the second largest on record and carryover is projected to grow to almost 1.9 billion bushels. This suggests upside potential could be limited. However, a large crop is needed in 2008 to meet growing demand and competition for acres may lead to higher prices as the market bids for corn acres. Uptrending soybean prices and higher energy prices are also providing support and could help pull corn prices higher.
• There is definitely downside price risk at these price levels. In recent futures trading, corn prices appeared ready to break the short term uptrend while soybean prices were moving to new highs. Large supplies and any signs of slowing demand would be negative to prices and could trigger a market sell off.
• What about seasonal trends? Following a post-harvest rally, corn prices often decline to a wintertime price low, especially if cash deliveries increase after the New Year holiday as some analysts are expecting.
• As mentioned, basis has recovered and is near average levels at many locations. While additional basis recovery may be possible, basis strength is a signal that the market wants some corn deliveries.
• Current prices provide production profits. The futures price rally since early October, coupled with stronger basis, is also offering storage profits on corn that was stored at harvest time.

Other market factors provide a mixture of market signals. The December ’07-March ’08 futures market carry is nearly 18 cents per bushel and the March-May carry is about 10 cents. This suggests additional storage returns are possible, especially if additional basis strength occurs too. World corn supplies are tight and many analysts expect upcoming USDA estimates to show additional reductions in US corn yields and crop size. These are supply/demand factors that, when coupled with strength in other commodities and the weak dollar, point to the potential for higher corn prices. Technical market signals also need to be watched. Breaking of the short-term uptrend line or price support near $3.83 (March futures contract) would be a negative signal. Penetration of upside price resistance near $4.08 would suggest that the price uptrend will continue. The signals are mixed, but a majority of them seem to suggest that, at these prices, it might be a good time to add to corn sales.

It is usually hard to be wrong selling soybeans at prices above $9, but prices are in an uptrend.

• January soybean futures prices have set new highs and are the highest since 1988.
• Cash bids at nearly all Missouri locations are in the upper one-half of the USDA’s projected 2007-08 soybean price range. Many locations in central, northeast and southeast MO are at or above the top of the USDA’s projected price range.
• Soybean prices have been in an uptrend since early August and the strong trend gives few hints on any upside limits.
• But at these price levels, there could be a significant and rapid downside price decline if the soybean price uptrend is broken.
• The seasonal trend is normally downward into a winter low, however prices continue to move counter to seasonal trends.
• Basis is very weak. Projections for tight ending stocks suggest that basis should eventually strengthen and provide support to cash prices.
• Cash prices above $9 are profitable prices!

Among other market factors, soybean futures market carry does not cover all storage costs and higher prices and/or stronger basis will be needed to produce storage profits. Although US supplies are projected to tighten significantly, world soybean supplies will remain adequate and a lot depends upon 2008 production in South America. Technically, prices are in a strong uptrend and have support near $10.30 in the January contract. These are historically high soybean prices and sales would definitely capture profitable prices. But, since the uptrend remains intact, it is not an easy decision to sell, especially if some soybean sales have already been made.

The corn and soybean markets are offering opportunities to capture profitable prices and maybe some storage gains on a portion of your crop, which are market signals that are hard to ignore. Unfortunately the answer as to whether this is a good time to sell is not a definite yes or no. In marketing, it never is! The problem is, while sales might be a good idea, the signals are somewhat confusing and the potential for higher prices certainly exists. As good as current prices are it would be disappointing to miss out on much higher prices. This is where marketing strategies get tricky. It is unlikely that you can capture the market highs, since the highs are unknown until well after they have occurred and prices have declined. Risk increases as bull markets rise to historically high prices, reverse sharply and often decline rapidly after setting the price peak. Price opportunities such as these seldom last very long. Waiting for higher prices is one thing, letting current price opportunities slip away as the market declines is something to avoid. Remember, that whatever happens to prices, it is hard to "be wrong" when selling soybeans above $9 and corn in the upper $3 range. That is why sales should always at least be considered when prices are offering profitable returns.

If you decide to pass up favorable prices, you must answer the question, "What are you waiting for?" Determine what market signals will trigger sales at higher prices. At the same time, determine what will trigger sales if the uptrend stalls or prices start to decline. In this way you can define what you are waiting for with upside targets or goals if prices continue higher and downside price traps if you are wrong and the market reverses. Once you have determined what you are waiting for, follow through with your decisions. This strategy requires a lot of discipline to make sales when price targets are triggered and you need to be prepared to act quickly, especially if the market reverses sharply and begins a rapid decline. While this strategy could capture higher prices, it is important to be prepared to accept somewhat lower than currently offered prices if downside traps trigger sales. November 16, 2007.

[CAFNR] [AgEBB] [DASS] [FAPRI] [Ag MRC]