Posted by: usset001 | December 13, 2010

Plan Updates: Post-Harvest Marketing of 2010 Corn

This week I intend to follow-up on my pre and post-harvest marketing plans for corn, soybeans and wheat. We can ask a few questions like “What am I trying to accomplish? and “How is the market cooperating?”

When I wrote my post-harvest plan for corn in mid-October, the futures market had been on a tear (Dec’10 @ $5.63), basis was in the tank (86 cents under the Dec – the widest ever) and carrying charges were modest. I chose to sell the carry, with the expectation of a very strong basis by next spring. The basis in mid-October was 106 cents under the Jul’11 contract. Based on strong corn demand (ethanol!) and decreasing corn stocks, I expect the corn basis to reach 25-35 cents under the Jul’11 contract, sometime in the April-June period.

What’s happened since I wrote the plan two months ago? Futures have been volatile but generally flat – July corn has traded as high as $6.30 and as low as $5.20 per bushel. It is currently near the $5.90 mark, about 10 cents higher than the level in mid-October. The expected stocks situation by the end of the crop year remains very tight, ethanol demand is strong, and there is no shortage of predictions for a major bull move in the months ahead. You don’t have to look hard for predictions of $7.00 – 8.00 corn.

How did we survive before

The basis has narrowed sharply, from nearly 90 cents under the Dec’10 contract at harvest to about 50 cents under the Mar’11 contract in many parts of Southern Minnesota. I even note some strong deferred bids for corn – about 45 cents under the Jul’11 contract for June delivery (bids for this time period were 20 cents lower at harvest). I remain confident in basis levels of 25-35 cents under (possibly stronger!) by spring.

For farmers with unpriced corn in storage, there are many people who think you will make good money in the months ahead. I took a more conservative “sell the carry” approach which gives-up any upside price potential in exchange for a hedge against lower prices and the opportunity to profit from a narrowing basis. So far, it is working very well.

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