Technically Speaking

An average-price contract is a forward marketing contract that does not utilize options but rather a historical tendency for futures prices to follow a seasonal pattern in corn. In this case, the contract references new-crop or December corn futures.

The historical numbers have proven that marketing new-crop corn in a spring-time window versus selling at harvest, especially when adhered to each year, is a big winner for the producer over the years. The percentage is roughly 70% or higher that the average of December corn futures daily closes between March and the end of June, results in a significantly higher futures price than if corn were sold during October-November or at harvest. This is a contract that is typically more effective if a producer enters a certain percentage of his or her average production history each and every year. Some major grain companies are using a similar April 15-July 15 pricing period, which would encompass the usual pollination window and is likely to have similar results.

If it is a March through June averaging period, the futures price will be known on July 1. The basis on such a contract can be set at inception or any time prior to delivery and at the discretion of the seller.

Let's look at a recent example, using December 2019 futures. December corn was trading sideways to lower in March-April before rallying sharply to mid-June and then sold off dramatically to make a new low in September and remained low in October-November.

I am by no means saying that each year shows the typical pattern of highs in the spring and lows at harvest. However, even taking the years where the high may have been forged in the fall, the longer-term pattern for December corn shows a definite seasonal pattern to rally into early summer and fade into harvest time. I would recommend entering no more than 20% to 30% of anticipated production each year as part of your corn marketing plans. The beauty is that history is on your side as a producer, and such a contract takes the emotion out of marketing.

In short, participating in such an averaging contract can be done at most local elevators or grain companies, and typically dates and quantities can be modified. Those firms can also give you the exact numbers for such a contract for the past 20 to 30 years. There is typically a small cost to participate -- usually no more than a few cents per bushel. In 2025, the current bear move in corn might be the perfect time to enter an averaging contract with a good two months of important weather in Brazil and planting decisions in the U.S. to endure.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at dana.mantini@dtn.com

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