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Timing the spring crop price rallies

June 19, 2020
By Steve Johnson - Columnist , Farm News

The spring months are typically when both corn and soybean futures prices peak for the spring and summer months. Prices then typically drift lower and put in their harvest lows in September or October. The timing is because nearly 85% of the world's feed grains and 50% of the oilseed crops are produced in the northern hemisphere. Spring is when the greatest production uncertainty typically takes place.

Since the 2011 crop, both corn and soybean futures prices have rallied every spring and tend to peak around mid-June to mid-July. In 2019, the corn saw the highest futures prices in five years with a peak on June 17. The soybean futures price high for the entire crop year occurred on June 18. For any given year, there is no magic day, week, month or even price known until it has occurred. Most years, those spring highs happen somewhere between mid-May and mid-July. Unfortunately, most producers miss these futures price rallies because they fail to establish reasonable time and/or futures price targets and lack discipline in marketing their crops.

By early June 2020, both the July and December corn futures prices have rallied more than $.25 per bushel since the mid-April life-of-contract lows. For soybeans, July and November futures prices have rallied more than $.50 per bushel from their lows. Producers should consider rewarding these rallies, especially for their old crop bushels. The federal government has already provided $67 per planted acre on average for the 2019 crop via the Market Facilitation Program (MFP) payments. The Iowa average is about $.34 per bushel for corn and $1.20 per bushel on soybeans, respectively. Now producers can sign-up for the new Coronavirus Food Assistance Program (CFAP) with payments of potentially $30 per acre for corn and $12 per acre for soybeans on average. That's another roughly $.15 per bushel for corn and $.20 per bushel for soybeans on average. Most producers would find that 2019 was a very profitable crop year, but the profit was primarily from reasonable yields, their pre-harvest sales in the spring months and then the additional federal government payments.

Unfortunately, most producers only focus on price and not the total crop revenue generated from the crop. For the 2020 corn crop, stop and think about the storage challenges with a record national production forecast of nearly 16-billion-bushels. Prospects for large 2020 U.S. planted corn and soybean acres are now becoming reality. These acres were likely confirmed with great planting conditions in most of the Western Corn Belt and minor challenges in the Eastern Corn Belt. The USDA's Prospective Planting Report released on March 31 estimated that U.S. farmers would plant 97 million acres of corn and 83.5 million acres of soybeans in 2020. Those numbers will be updated in the USDA Acreage Report to be released the morning of June 30th.

If those planted acres along with near trendline yields are realized; the greater price risk for most row-crop producers could be this late summer into harvest with unpriced 2019 and 2020 bushels. Basis will likely weaken by late August into September to more normal levels witnessed during harvest in the 5 years prior to the 2019 short crop. Consider now the importance of establishing basis for both old crop bushels and any new crop bushels that you wish to deliver during harvest. This includes marketing tools for the 2019 crop where you may still be long futures or have basis or price later contracts that are subject to futures price and/or basis risk.

Come harvest, expect a large carry in corn futures for the deferred contracts. Having adequate on-farm storage could allow you to "sell the carry" and hold those bushels into the late winter or spring months of 2021 awaiting better basis. Timing is everything, so establish reasonable futures price targets now so procrastination doesn't lead to poor marketing decisions again in 2020.

Iowa State University Extension has created a new web page to assist producers looking for timely crop marketing education including webinars, webinar replays with handouts, weather outlook videos and crop marketing strategies newsletters. The site is titled the Virtual Ag Marketing Clubs and can be located at: www.extension.iastate.edu/polk/VAMC

Steve Johnson is an ISU Extension farm management specialist. Contact sdjohns@iastate.edu.

 
 

 

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