Locking Down a Price

Market Analysts Say Farmers Need to Lock in Some Sales Before Crop is in the Bin

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The 2017 DTN/The Progressive Farmer Ag Summit officially kicked off Monday and continues through Wednesday. (DTN photo by Nick Scalise)

CHICAGO (DTN) -- With the fifth year of large crops and relatively flat markets for corn and soybeans, farmers should look at some early selling, market experts told attendees at the DTN/The Progressive Farmer Ag Summit.

The Ag Summit officially kicked off Monday and continues through Wednesday, but Sunday offered some focus on marketing and taxes for early attendees.

Tregg Cronin, a farmer and market analyst in South Dakota, noted that volatility was the major buzzword during the corn boom, but he said those large day-to-day, week-to-week price swings have largely gone away.

"Volatility is very low and it looks like it is going to stay low going forward," Cronin said.

The trend now is that if farmers want to capture higher prices in the market, they should be looking into locking in contract prices early in the growing season for next year's corn crop. Cronin noted that, since 2000, the December corn contract has hit its high 66% of the time before the end of August. And 50% of the time, the contract high comes between April and July when there is more market uncertainty about the overall state of the corn crop.


Despite the contract highs coming over the summer, most farmers still wait to market until after they have been assured a crop. "Well, if you do that, you are almost always going to sell your crop after the highs are already in," Cronin said. "We've got to be more aggressive when the market does not know what we've got ... We've got to get away from only marketing when the crop is in the bin."

Mark Welch, a grain marketing specialist from Texas A&M University, also reiterated that price expectations tend to come earlier rather than later. Looking back to 1980, Welch said, there's a 70% chance that the December contract price will fall during second half of the corn growing season.

"It's incredibly important that we take advantage of those early selling seasons," he said.

While cautioning that every farm and every marketing plan is different, Cronin said as much as two-thirds of his 2017 crop is sold, as well as about 15% of the 2018 corn crop based on early projections of a large crop.

USDA, in an early forecast released last week, projected both corn and soybean planted acres next spring will hit 91 million acres. The December 2018 CME corn contract was at $4 a bushel in early November, but has fallen. It was trading at just under $3.90 on Monday.

Given the limited volatility, Cronin said a price close to $4 a bushel can't be dismissed.

"I highly doubt we will be back in this room next year saying $3.95 was a terrible sale," he said.

Crop insurance also plays a role in helping farmers manage risk in the market, said Rich Morrison, a senior risk analyst with Diversified Services Marketing Group. If a farmer is locking in insurance protection on 70% to 85% of the crop, that should give them more confidence to forward contract at least a share of that crop to lock in a higher price earlier in the market year, Morrison said.

Cronin noted part of the rationale for anticipating a large corn crop in 2018 is because the large soybean crop planted in 2017 will require rotation, and wheat acres are expected to decline again. He said soybean acreage in the Northern Plains last spring will convert more to corn than wheat next year. "The agronomics are playing into this as much as economics are," he said.

Cronin also said he's concerned about the state of the soybean market. He noted exports are behind last year's pace at this time, even though USDA forecast a 3% increase for the 2017-18 crop.

"The fact that the market is paying us to sit on beans when we should be shipping them out the door makes me a little nervous," Cronin said. "The next 30 days are going to be very important to this soybean market."


DTN Analyst Todd Hultman noted soybean shipments in 2017-18 so far are down 13% from a year ago. China's appetite for U.S. exports has a lot to do with how they perceive Brazil's next crop coming along and, so far, conditions in Brazil are generally favorable.

But Argentina has been suspiciously dry with La Nina showing up as a new factor. On Monday morning, Brazil's FOB soybean price jumped up 19 cents to a new four-month high of $10.80, likely on nervousness about Argentina's crop conditions, Hultman said.

While everyone is looking for a new marketing strategy, Cronin also cautioned that farmers should use over-the-counter contracts in moderation with major grain companies. While they can be good tools and look attractive in a low-margin environment, Cronin said there have been situations in which those contracts have forced producers to deliver crops at prices lower than the CME contract ever hit.

"They are not a silver bullet," Cronin said. "They need to be used with other market tools."

Looking at the 2016-17 crop in the bin, DTN Senior Analyst Darin Newsom said that, in the short term to medium term, corn may be a little undervalued. Currently, the trend on noncommercial traders is fairly bearish in the corn market with more than 91,000 short contracts held as of Nov. 28, Newsom said. Corn has been seeing, on average, a 7% to 9% price rally in June for the old crop. "Corn may be set up to go a little higher," he said.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


Chris Clayton