As expected, grain markets have shown considerable price volatility through the winter. Corn has rallied about 30 cents per bushel since mid January, and soybeans by over twice that. However, both commodities have had days with double digit reductions in price. Wheat prices have also shown considerable price volatility, with July futures currently about 20 cents above their mid January price level.
While futures prices have managed to increase since early winter local and national basis levels have weakened. At the regional corn conferences and Corn/Soy Expo I suggested not storing corn and buying call options on the July futures contract. So far this strategy has worked pretty well. July futures have increased about 30 or 35 cents since mid January. However, cash prices have not kept pace. Farmer sales have kept cash prices lagging behind futures, especially on days with large futures price increases. The July $2.70 call option has increased in value about 25 cents since mid January.
The first new crop sales target at the corn meetings was identified to be $2.85 per bushel on December futures. That price target was achieved about two weeks ago, and the market has managed to hold above that level since. It closed this week at about $2.93. Producers who followed the sales recommendation sold between 20 and 25 percent of expected 1997 production at that price level. At this point I think it is too early to consider further sales.
The next important report for the corn market is the USDA Planting Intentions Report. This will be released on March 31. Sparks estimated last week that USDA would identify just under 81 million acres to be planted to corn in the US for 1997.
In the regional soybean meetings and at Corn/Soy Expo I had suggested storing old crop soybeans, and looking for a November futures price of $7.40 to sell the first 20 to 25 percent of 1997 soybean production. While futures prices have rallied substantially since then, basis levels have lagged so storage has not paid the equivalent of the futures rally. Any continued storage from this date forward is a bet on a continued price move to the upside in the July soybean futures market. While the tight stocks situation and excellent export market to date make such a move a possibility, it is important to note that South American producers are harvesting an excellent crop AND having no problem getting the crop to the export facilities. Brazilian soybean production estimates have been increased twice by USDA this winter relative to earlier estimates, and now stand at 27 million metric tons. Sources in Brazil suggest that this number is still too small.
The new crop price target of $7.40 was hit early last week but only lasted one day. As such it is likely that many producers did not seek price protection at that level. While there are several reasons to be optimistic about that price level being hit again, I do think it is quite risky to carry all of 1997 production into the March 31 plantings report with no price protection. As such, it might be prudent to take some protection (say 20 percent of production) anywhere above $7.10 on November futures between now and March 30. This does not mean that prices will not go higher, but represents protection against the combination of record South American production and record U.S. acreage.
Wheat prices have also been quite volatile of late. July futures are currently at about $3.80. I had been recommending no new crop sales for 1997. However, I now think it would be reasonable to think about pricing as much as 25 percent if July futures reach the $4.00 level. I would not be more aggressive on the percentage priced unless I was certain that my wheat crop was in excellent condition.
T. Randall Fortenbery Department of Agricultural and Applied Economics (608) 262-4908
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