Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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November 10, 2000

Preparing for the Unexpected

USDA's latest Supply and Demand Report (Thursday, 11-9-00) corn and soybean production estimates were described "about as expected." Actually the production numbers were slightly below average trade estimates. Both U.S. and World new crop corn ending stocks are expected to decrease from earlier estimates and were also slightly below average trade expectations. U.S. '00-01 soybean ending stocks estimate dropped from previous estimates, but was above average trade expectations and World ending stocks showed an increase due to increased South American production estimates.

Since the report was about as expected, early market calls were for slightly higher corn prices and slightly lower bean prices. What really happened? December corn closed down more than two cents and January soybeans were down more than seven cents per bushel--not necessarily what would be "as expected!"

Market expectations are beginning to improve. Just three months ago, the August Supply and Demand Report projected record corn and soybean production and large ending stocks (2.389 billion bu. corn and 465 million bu. soybeans). Now the corn crop is no longer expected to be a record and projected ending stocks have slipped to 1.679 billion bu. of corn and 350 million bu. of soybeans--still large, but a definite improvement. This along with tighter World coarse grain supplies suggests a more optimistic price outlook than in August.

Don't get too bullish, there are negative factors too. The USDA numbers still suggest a record soybean crop and next year's South American production estimates are higher in this report. In spite of the reductions, both corn and soybean '00-01 ending stocks are expected to be higher than average for the past ten years. Estimated average prices (corn $1.90, soybeans $4.70) are at or below CCC loan prices. Significantly higher prices aren't "in-the-cards" yet.

It will be easy to be wrong with price expectations and sales targets again this year. The supply and demand situation along with prices will likely continue to change, just like the situation has changed since August. Good weather in South America could produce even larger supplies and lower prices. However, poor weather would do just the opposite and fuel higher prices. When everyone begins to get a handle on South American production, U.S. weather and 2001 corn and soybean crops will begin to influence the markets. Risk and uncertainty continue to rule.

This situation calls for flexible or "What if I'm wrong?" strategies to market remaining corn and soybean supplies. Spreading out sales or using "scale up" pricing methods are possible strategies. Having downside price targets, as well as upside targets, can help avoid holding too long. Using minimum price contracts or put options can protect price on stored grain, if the LDP has already been claimed. Buying a call option to replace cash sales would allow participation in an unexpected price rally. They aren't "perfect," but these are examples of a variety of tools and flexible strategies that are needed to manage the unexpected.--Melvin

University of Missouri ExtensionDecisive Marketing - November 10, 2000 -- Revised: April 20, 2004