Melvin Brees
Farm Management Specialist
University of Missouri Extension




Decisive Marketing

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December 17, 1999

Will Things Go Downhill From Here?

Thursday's (12-16-99) Central Missouri cash bids were about $4.30 for soybeans and $1.80 for corn. While corn prices are about the same as they were two weeks ago, this represents a twenty-five to thirty cent drop in soybeans during this time period. A year ago, central Missouri cash prices were about $5.20 for soybeans and $2.00 for corn. Those didn't seem very good at the time, but that's nearly ninety-cents more for beans and twenty-cents more for corn than we can get today. Last year's bad news was that prices generally went downhill from there. Are we looking at the same situation this year?

Some analysts believe that there is still considerable downside price risk, even at these price levels. Some have suggested that prices may take out last summer's lows! They are looking at large supplies and expect them to start moving after the first of the New Year--pressuring prices lower. If improved moisture conditions continue in South America, another large crop could develop there, which would further increase world supplies and export competition. These factors, along with another large U.S. planted acreage; all suggest burdensome supplies and low prices in 2000.

Not all factors and price signals are negative. Exports for corn and soybeans (wheat too) are running ahead of year-ago. Soybean basis is approaching recent year averages and is about twelve cents stronger than last year--suggesting a stronger cash soybean demand than last year. This continues to suggest the opportunity to move cash soybeans and use futures or call options to speculate on higher prices. Premiums on July call options just about equal storage costs (if beans are in commercial storage) and this allows speculation without the risk of lower prices.

The markets will be filled with risk as we enter the New Year. Increasing supplies and good production could easily result in even lower prices. However, demand appears to be healthy and any production problems could result in significant price moves. Right now, it appears the bears are in control and prices will be pressured into the New Year. Heavy cash movement of grain could weaken basis and further limit sales opportunities. Market plans should consider these risks. Higher prices may or may not occur. If they do, they may be several months away. Holding cash grain may not be the best strategy to take advantage of late spring or summer pricing opportunities.

The possibility of prices going downhill from here is very real. Not the best news to hear as we go into the holiday season. However every year brings changes and surprises. Hopefully 2000 will bring positive surprises. Flexible strategies that protect against the "bad" and allow taking advantage of the "good" are the keys to successful marketing regardless of what the coming months bring.

"Decisive Marketing" will not be published next week. In spite of the low prices, take time to enjoy family and friends during the holiday season. Merry Christmas and best wishes for a Happy New Year!

-- Melvin

University of Missouri ExtensionDecisive Marketing - December 17, 1999 -- Revised: April 20, 2004