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.
June 11, 1999

The Next Three Weeks

In most years, the best pre-harvest market opportunities happen before the Fourth of July. That's only about three weeks away! While mid or late summer weather is important, prices higher than those in late spring or early summer have occurred less than 20% of the time in the last twenty plus years. It's not impossible, but hoping for better prices in late summer is "betting against the odds."

Right now, the prospects for better prices appear limited. Central Missouri new crop cash bids are $4.30 to $4.50 for soybeans, low $2 range for wheat and corn at $1.90-$2.10. These are all low prices and you have to wonder, how much higher can they get in just three weeks? If you plan to store, there is still more than twelve months left in the marketing year for the 1999 crop. However, for crop that must be delivered at harvest, time may be running out!

Many analysts expect corn prices below loan price and soybeans to be near $4 at harvest. Some even anticipate soybeans in the $3 range! These prices could be a disaster were it not for the CCC loan. Most producers are eligible for the loans and they will establish price floors near $5.25 for soybeans, $1.89 for corn and $2.58 for wheat. Making sure that you maintain eligibility for the loan or LDP is very important this year.

Will the next three weeks provide the opportunity to improve on the loan price? No strategy is "perfect" and opportunities are limited. If some of the fall price predictions are correct, new crop bids are still above what they will be at harvest. A forward contract at these prices, remaining eligible for and using the LDP, might provide a net price higher than loan price. Even a small rally in the next three weeks would offer more.

How should you take advantage of a rally in the next three weeks? Forward contracting locks you in for delivery, at disappointing prices, regardless of what happens later. But it could beat what you will get at harvest. Minimum price contracts or buying put options are more flexible, but option premiums may "eat up" any price gains. This might be a time to consider a short (sell) futures hedge. This would allow protecting a price without the obligation to deliver on a cash contract. If summer weather conditions do happen to cause a late rally, the hedge could be liquidated. You would need to follow the markets closely and/or use "stop loss" orders. There is risk of margin calls, if prices rally and you don't get out. However, using futures does provide some late summer flexibility while offering some price protection.

The present price outlook isn't good, but the situation isn't completely hopeless. You do have the price protection of the marketing loan and the next three weeks might allow you to improve that somewhat. -- Melvin


University of Missouri ExtensionDecisive Marketing - June 11, 1999
http://outreach.missouri.edu/agconnection/DCT/DM990611.html -- Revised: April 20, 2004
breesm@missouri.edu