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.
January 12, 2001

Roller Coasters Belong in Amusement Parks!

The term "roller coaster market" is sometimes used to describe up and down price action. If you look at the price chart for the March 2001 Chicago Board of Trade soybean futures contract, the high occurred last May at $6.04. After a sharp price plunge, the contract low at $4.67 occurred in July. Prices recovered to near $5.30 in August before falling again to about $4.75 in October and then back up to around $5.20 in December. They are now headed back down--the chart does look like a drawing of a roller coaster!

Thursday's USDA Supply and Demand report appeared to accelerate the latest downtrend. The surprise in the report was the lack of changes for soybeans. Market analysts expected a greater reduction in production and an increase in use, especially exports. However, export projection were not changed and only minor adjustments left expected ending carryout unchanged. The market is also concerned that limited nitrogen supplies and high prices will shift corn acres to soybeans. With good production prospects in South America, the market needed better news!

What should you do with stored soybeans? The market signals really aren't that clear. Increased ending stocks, potential of more U.S. soybean acres and the prospects of South American competition create a discouraging outlook. The deferred month futures contracts offer some market carry (July futures $4.92 vs. $4.79 March at late morning on Friday), but not enough to really cover storage costs--especially if the beans are in commercial storage. Central Missouri basis remains weak at a minus thirty-six to minus forty-three cents based on Thursday's futures closes and bids at various locations. This represents a much weaker than normal basis and reflects weak cash demand. The risks are even greater if the LDP has already been claimed. Downside price protection has been removed. Storage costs, lower prices and continued weak or weaker basis can "eat up" the attractive LDPs that were collected earlier. The market appears to be discouraging cash sales, but not offering much hope for storage returns either. This situation limits marketing alternatives and makes decisions tough.

In addition to up side price goals, market plans should always include down side price targets. These downside price targets represent "bail out" prices which trigger sales to "save what you have" or minimize losses before prices decline further. If you don't have "bail out" price targets, consider setting them. These are always difficult prices to accept, especially if you still expect (or hope for) higher prices. In some cases re-owning with July or August call options might offer an alternative to storing cash beans. The premium cost, while not cheap, does compare with interest and storage charges for soybeans in commercial storage.

Most of us would prefer that roller coasters remain in amusement parks. The current soybean price "roller coaster" certainly isn't amusing or fun if you have soybeans in storage. What makes it worse is, most roller coaster rides end at the bottom! --Melvin

 


University of Missouri ExtensionDecisive Marketing - January 12, 2001
http://outreach.missouri.edu/agconnection/DCT/DM010112.html -- Revised: April 20, 2004
breesm@missouri.edu