Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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June 16, 2000

Where to From Here?

December 2000 corn futures set new life of contract lows this week. Soybean prices were almost as bad with November futures slipping below $5. "Hindsight" is the word used by several analysts wishing they had been more aggressive in making sales. Probably most of us feel the same way.

"Rain makes grain." Recent market action illustrates how market participants believe that saying. Rainfall, especially in dry areas, has eased drought concerns. The corn crop was planted early and, with recent rains, many believe it now has the potential for very good or possibly record yields. In addition, last week's USDA Supply and Demand Report projected a corn yield of 137 bpa causing ending stocks (2000-01) estimates to increase. The report also estimated a 40-bpa-soybean yield and a new record ending supply of 495 million bushels. These numbers produce average price projections of $1.85 for corn and soybeans at $4.50. This suggests that prices could go still lower, especially if yield prospects continue to grow.

While "rain makes grain," it will take more rain. Harvest is months away and subsoils are still dry in much of the southern Corn Belt and in the South. The National Weather Service 30-day forecast for July predicts hot and dry conditions in these areas. Corn yields could still be hurt and soybean yield risk is even greater.

"Low prices cure low prices." That's another market saying that may be coming true. While weather and production potential have been the newsmakers, demand is also growing. Soybean futures have produced an "inverted market" with July futures priced higher than November this week. This inversion suggests strong demand for cash soybeans. The USDA Supply and Demand Report also projects record demand for corn and soybeans with increases in both domestic use and exports. With strong and growing demand, any production "hiccup" can result in significant market price reactions.

Which way will prices go from here? The economist answer is, "they could either way!" There is still a lot weather and production risk, which suggests the potential for more price rallies or declines. Developing a marketing strategy to deal with these risks makes more business sense than trying to outguess the markets.

The best strategy is to be in a position to avoid "having" to make sales on depressed prices. This may include making pre-harvest sales, on price rallies, for grain that must be moved at harvest. It also means looking ahead to cash needs and developing market plans to deal with these needs. There are a variety of tools (forward contracts, minimum price contracts, futures, options, etc.) that can be used. The highest price is almost impossible to get, but don't get stuck with the low! -- Melvin

University of Missouri ExtensionDecisive Marketing - June 16, 2000 -- Revised: April 20, 2004