Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
August 11, 2000

What Have We Learned?

The past two years have produced some hard lessons when it comes to grain marketing. Weather is unpredictable--especially when the weather service predicts a drought. Seasonal price peaks don't always peak. The "experts" can be wrong and wish that they had recommended sales earlier. Everyone could probably add several more lessons to the list. However, there are some "lessons" that we should be able to use, such as avoid selling at the lows, don't store too long and learn to manage the LDP.

Avoid selling at the lows. While most would argue that grain prices have been low for more than two years, there have still been some price rallies. Gains of $0.30 to $0.50 per bushel for corn and up to nearly $1.00 per bushel for soybeans have occurred. Large crops often result in low prices and a weak basis at harvest time. Low prices also occur in the summer when growing conditions are favorable for the new crop and old crop supplies are abundant. It is important to avoid getting trapped into selling during these low price periods just because cash is needed. Market strategies and cash flow needs should be planned to avoid these low price periods, so that sales can be made when rallies occur.

Don't store too long. Prices often recover, from harvest time lows, into winter. In 1998, both corn and soybean prices increased rapidly from September into late November and early December. This rally offered significant storage returns, but it quickly faded at year-end. Storing into January was storing too long and resulted in losses, as prices never recovered significantly after that. For 1999 crops, storing corn until March produced the highest net returns over storage cost. The highest soybean prices occurred in May; however, storing this long might not have been the best strategy. Selling cash beans in January would have captured a better (narrow) basis. The soybeans could then have been re-owned with futures or options with less risk and still captured the price gain. In both years, storing corn or soybeans until early summer and hoping for a summer weather rally didn't work.

Manage the LDP. The loan deficiency payment or marketing loan gain provisions of the CCC loan program does provide a "safety net" or price support at the county loan price. LDP calculations are based on the cash market, so LDPs can also capture basis. In addition to the price support benefits, it is possible to significantly enhance prices through timing of LDP collection. A combination of short term storage to capture price and basis gain along with collecting the LDP near fall lows allowed several producers to net over $6.00 for their soybeans in both years! --Melvin

The past two years of low prices have been difficult. Price rallies have occurred and storage has paid, but the rallies were limited and storing too long became very costly. The LDP offers some help, but it must be understood and used properly as a risk management tool. Current outlook for the coming year doesn't offer much hope for significant price improvement. This means the lessons that have been learned could be very important.


University of Missouri ExtensionDecisive Marketing - August 11, 2000
http://outreach.missouri.edu/agconnection/DCT/DM000811.html -- Revised: April 20, 2004
breesm@missouri.edu