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:
August 6, 1999

Hey -- Doesn't It Take More Than a Forecast!

It has been dry all summer in the eastern corn belt, but rain forecasts continued to push prices down. July brought hot temperatures, the forecasted rain didn't amount to much and the dryness spread -- causing crop damage. Now the markets appear to be shifting their attention to crop damage. Did they finally realize that rain in the forecast isn't enough -- it really takes rain!

How high will prices go? How long will the rallies last? These are the always-asked questions that no one really knows the answer to. The amount crop damage will be looked for in private estimates and next Thursday's USDA crop report. It will depend upon how bad corn yields have been hurt and how the next few weeks' weather effect soybeans. Remember, carry over supplies are large, especially for soybeans. Crop yields can take a "hit" and we still won't run out of anything. These will still likely limit gains. However, if the "market psychology" changes from bear to bull, it is possible for prices to over react to the high side. It's becoming a typical volatile weather market and price moves up or down can occur quickly.

This is a very challenging marketing decision making situation. There are huge risks of selling too quickly or waiting to long!   The condition of our crops complicates this situation even more. Central Missouri crops have deteriorated considerably in the past two to three weeks (some have been stressed all summer). If our crop is going to be short, we want to get the highest price we can -- we need all we can get. But if the market breaks, we are faced with the possibility of a reduced crop and lower prices -- the worst possible situation!

Spreading sales out and using a "price trap" or "trailing stop" may be the best strategy. It's usually not wise to try and sell everything at once. There is still a little more than a year to sell this year's crops and our actual production is still uncertain. A price trap or trailing stop which attempts to follow an up trend until it breaks. The trap or stop price is a downside price target that triggers sales when prices break to the downside. These trap or stop prices are raised, but always below the current price, as long as prices move up. Understand that this isn't an easy strategy. It means selling at less than the high because you sell when prices back off. You have to be quick, because prices may fall rapidly. Identifying where to place the stops can be difficult because the market can decline and trigger your trap or stop price, then continue higher. In this volatile market situation basis is usually weak, which may produce discouraging cash prices in spite of a sharply higher futures price.

We all know that it takes more than just rain in the forecast, it takes rain. Yet, yesterday's (Thursday,  8-5-99) price action illustrates forecasts of rain still has an impact. Expect prices to fall sharply when it actually does rain significant amounts. Pay close attention to the markets, we may need to react very quickly. -- Melvin

University of Missouri ExtensionDecisive Marketing - August 6, 1999 -- Revised: April 20, 2004