Posted by: usset001 | October 31, 2012

Why I remain friendly to old crop corn and soybean prices

In recent posts I explored the old grain saying that “short crops have long tails.” It’s true, and it seems to lay out a pretty strong argument for early pricing of 2013 production. I still have not acted on any 2013 sales.

(I watch 2013 new crop prices – Dec’13 corn, Nov’13 soybeans and Sep’13 HRS wheat – daily. While nearby corn and soybean prices are $1-2/bu. off their late-August/early September peaks, the decline in 2013 new crop prices has been more modest. Dec’13 corn and Sep’13 wheat are only about 3% off their highs of a few months back. Nov’13 soybeans are about 4.5% lower. I never expected to sell the high.)

My outlook (caution: I’m about to do some prognosticating and my record is sketchy) for old crop 2012 prices is friendly. How can I hold two seemingly opposite opinions – ready to sell 2013, but friendly to 2012 prices – on the same crop?

The answer is in this question: Is this year best characterized as a “short crop” year, or a year of exceedingly tight stocks? It’s both. While the short crop analysis points to the value of early sales in the next crop year, tight stocks indicates the chance for even better prices of old crop next spring and summer. The attached charts tell the story.

At the core of my seemingly opposite opinions of old and new crop, is a strong opinion on spreads and basis. I can imagine (in corn and soybeans) old crop/new crop spreads going to even greater inverses in the first half of next year (e.g. Jul’13/Dec’13 corn, or Jul’13/Nov’13 soybeans). These markets are already showing healthy inverses – about $1 in corn and $1.15/bu in soybeans. Under the right conditions, both spreads have a chance to go to $2 inverses. I am also a basis bull, and anticipate strong “overs” in corn next spring/early summer.

That’s my opinion, and I like to remind people that I have been wrong before.


Responses

  1. Hello Ed
    I am a small new farmer here in S.E.PENNA. Were would a small farm find a buyer for corn in PA?
    My crop did very well and is standing stronge even after 80+mph winds we had monday.
    I did harvest about 1 ac for feed for my cows got about 175 bushel out of 1 ac. Have about 10ac more to harvest.
    My small Gleaner is ready and looking for a buyer before I harvest . any advise would be great.
    Thank You
    Patrick W

  2. The problem is we have never started from this lofty of a price before, have we? Will the high prices reduce demand to the point that this will be one of those down years? I’m hedging my bets and selling about half of the 2012 crop and waiting to sell the rest. 2013 will wait, I think that has some potential yet.


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