Melvin Brees
Farm Management Specialist
University of Missouri Extension




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July 9, 1999

Can You Avoid the Lows?

Reviewing price history is one tool for helping make sales decisions. If you look at the range of prices over time and divide it into thirds, it provides some guidance. If prices are in the top one-third of the historical range, the rule-of-thumb is to sell aggressively because prices typically don't stay high for very long. In the middle one-third it's best to follow the trend. If prices are trending up, delay sales in expectation of higher prices. If prices are trending down, begin making sales to avoid lower prices. For prices in the bottom one-third of the historical range, the rule is to avoid sales. Grain prices are currently near or below twenty-six year lows. Obviously these prices are in the bottom one-third and prices that you'd like to avoid.

For new crop grain, avoiding sales is fairly easy to do. Corn and soybeans are still growing and wheat has just been put into the bin, so there's generally no urgent need to sell right now. Prices could go lower, but the government loan or LDP provides price protection below loan price and prices are below loan price. Until prices bottom, the government is providing "free" price insurance and avoiding sales appears to be the best strategy for now.

It's an entirely different matter for "old crop" corn and soybeans still on hand and not under loan. Prices have been in the bottom one-third and trending down for months. The price protection offered by the LDP is gone once it has been claimed or the loan entry period passes. One lesson to be learned is that avoiding sales without downside price protection (CCC loan, put options, etc.) hasn't worked this year. Sales have been avoided while they were in the bottom one-third, but you can only avoid so long. Grain has to be sold sometime, even if prices are still in the bottom one-third of historical price ranges.

One strategy is to simply give up, take your losses and forget it! Large old crop grain supplies still remain on hand. A sizeable amount will be coming out of government loan and onto the market soon. New crop growing conditions suggest good yields and even greater supplies. All of this offers little hope for improved prices. This suggests "biting the bullet" and going ahead with old crop sales.

The other strategy is to continue to "store and hope!" The odds are against continuing to store, but you've stored this long -- so why not? The downtrend in prices has lasted for over two years and it will eventually change. Poor weather could still occur in late July and in August. Soybeans are late in many areas and a frost scare may occur in the fall. Either of these weather events could turn prices around. Even without weather, the steep decline in prices may be over done. Prices may bottom soon and recover quicker than some expect. If you can afford to wait, you've already taken the loss and maybe it won't cost much to wait awhile longer.

No matter what you decide, if you've still got old crop grain it's a bad position to be in. It's possible that it will get worse. However, don't forget that selling now is selling at or near twenty six year lows -- not a good time to sell! -- Melvin

University of Missouri ExtensionDecisive Marketing - July 9, 1999 -- Revised: April 20, 2004