Melvin Brees
Farm Management Specialist
University of Missouri Extension




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May 12, 2000

Double Digit Price Moves

In just over two weeks, November (futures) soybean prices have traded from a low of about $5.47 to a high of nearly $5.96. December corn prices had a trading low just under $2.50 and traded briefly above $2.72. Those are ranges of nearly fifty cents for soybeans and twenty cents for corn. In addition, during the two-week period, soybeans had four days with double-digit (more than ten cents) price moves and corn had double-digit changes one day. These sharp price changes occurred on both "up days" and "down days."

The primary reason for these volatile markets is, of course, weather--particularly the threat of drought. The National Oceanic Atmospheric Administration assistant administrator is quoted as saying, "already dry conditions in the Midwest and South region mean that the drought will get worse before it gets better." Two drought indexes (Palmer Drought Index and Drought Monitor) both indicate dry subsoil with dry to extreme drought conditions in most of the Corn Belt. Releases of this type of information, along with disappointing rainfall events, send prices sharply upward.

Market uncertainty results from the fact that the drought hasn't caused much damage--yet. Welcome rainfall, in Central Missouri, should allow crops to emerge and get started. It won't make the crop, but it sure helps. The situation is similar throughout the Corn Belt. The crop moisture index (topsoil moisture) indicates mostly moist topsoil with only scattered areas as slightly dry. In addition, several market analysts have looked at past years and concluded that a dry spring is not an indicator of poor crops--everyone knows that summer moisture is what really counts! That's why forecasts of rain cause sharp downward price corrections.

Today's (Friday) market opened lower on the USDA Supply and Demand report. This report included a first look at new crop (2000-01) corn and soybeans with estimates for increased production and ending stocks along with lower prices. However, this report is not based on survey data. It uses the March 31 planting intentions and trend yields (with adjustments). Weather could have a huge effect on these numbers!

This is a difficult marketing situation. Prices could again be very low, as the USDA report suggests, or prices could be much higher as a result of a drought-reduced crop. While many market analysts have been reluctant to makes new crop sales, they are quick to point out the risk of a price collapse with only a hint of better weather. Futures trading is likely to see more sharp up or down moves--especially on Sunday night or Monday trading. Remember that getting the highest price is nearly impossible to do. The best strategy is to focus on profitable prices and make allowances for uncertain production. It also means paying close attention to the markets on a daily basis since double-digit price changes can and are likely to occur quickly. -- Melvin

University of Missouri ExtensionDecisive Marketing - May 12, 2000 -- Revised: April 20, 2004