Posted by: usset001 | November 14, 2008

Corn and Soybeans: 2008 Post-Harvest Marketing Plans

corniconI write post-harvest marketing plans for corn and soybeans at harvest time, and I am late in getting them posted on the web site.  Click here for my 2008 post-harvest marketing plan for corn. Click here for soybean plan.

Grain markets – all markets – have been incredibly volatile and down since early summer. Cash corn that was worth $7 in late June was $3.50 at harvest time. Soybeans prices that reached as high as $15.50 in early July were $8 by harvest. It is tempting to pick the bottom of the market (see my previous post) but I won’t. I chose to follow Earl Eitheror and sell the carry in the market.

soybeansiconI don’t care how you measure them, carrying charges in corn and soybeans were large in October (they remain wide in corn but have tightened some in soybeans). Placing corn and soybeans in storage at harvest and selling (or rolling the hedge to) the July contract allows me to, (1) hedge against lower price levels, (2) capture a corn carry of 40 cents from Dec’08 to Jul’09, and 47 cents from Nov’08 to Jul’09 soybeans and, (3) wait for basis to narrow. Is it too much to ask that a harvest basis of 158 under the July in soybeans narrow to 60 under by spring? Or that the corn basis reaches 25 under the July by spring (vs. 85 cents under the July at harvest). I don’t know if growing ethanol production will revive the bull market in corn, but I like to think that growing competition for corn supplies from new and old plants will make for stronger basis levels in the heart of the corn belt.

What about the upside? Selling the carry is a hedged position that prevents me from enjoying the possibility of a renewed bull market. I could “re-own” my sales with the purchase of call options. Today, an at-the-money corn call will cost me a mere 50 cents per bushel (and 15% of the current cash value of corn). An at-the-money soybean call will cost me 115 cents. Wally Whipsaw and Peter Paperfarmer are reminding me that it worked well last year, but my margins aren’t that big and the price is too steep. I see plenty upside in my 2009 crops and pre-harvest marketing plans, where I have priced just 20% of my corn and soybeans for next year.

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