Time to start writing pre-harvest corn marketing plan
February 9, 2017
As farmers start making 2017 production plans, it is also time to start writing a pre-harvest marketing plan. It's not possible to predict 2017 prices, but historical price patterns can be examined to help determine a pre-harvest pricing strategy. Historical price patterns can be used to determine date goals and price expectations.
The 20-year and very-high-ending-stock average price indices for new crop corn futures prices are illustrated in the accompanying graph. Prices are normalized to 1.00 on Jan. 1 to allow a comparison between historical price patterns. A 0.01 change in value indicates a 1 percent increase or decrease in price from the base of Jan. 1. For example, an increase to 1.01 indicates a 1 percent increase in price from the base of Jan. 1.
According to the 20-year average price index for new crop futures, corn prices are highest in April, rising 3 percent from the beginning of the year. The window for pricing corn above the Jan. 1 price, according to the 20-year average price history, extends from January into July.
Considering very-high-ending-stocks years (those with global corn stocks greater than 183 million metric tons (MMT)), the price peak over Jan. 1 is at the same level, a 3 percent increase, but the window of opportunity for grain above the Jan. 1 price is much shorter, ending in late April. There are only four years considered in the very high ending stocks average: 1998, 1999, 2014 and 2015.
The closing price for the December corn contract on Jan. 3 was $3.84 per bushel. If 2017 follows either seasonal price pattern, we can expect the December Chicago corn price to peak at $3.96 per bushel. This pattern may not hold true during the 2017 year as other factors besides high global ending stocks may influence prices. However, USDA WASDE anticipates global corn ending stocks to be at a record high of 220 MMT at the end of the 2016-17 marketing year.
Pre-pricing corn early in 2017 may be advantageous for corn producers when examining the trends in the graph, especially since recent price rallies have already hit the anticipated peak in prices.
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Caution must be given to not over selling pre-harvest bushels. Although price risk is reduced by pre-pricing, farmers are still exposed to yield risk. Yield risk is partially mitigated by crop insurance. A widely accepted rule of thumb is not to pre-harvest market more production than you have insured.
In the end, farmers must determine the amount of expected production they are comfortable pre-harvest pricing. Not pre-harvest pricing any grain is an option. However, market fundamentals suggest producers should engage in some forward contracting to capture high futures prices during the growing season.
These data and comments are provided for information purposes only and are not intended to be used for specific grain marketing strategies. Past performance is not necessarily indicative of future results. Grain marketing involves risk, and you should fully understand those risks before pricing grain. ❖