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2017 Crop Marketing Planning

2017 Crop Marketing Planning

Supply pressure continues in the corn and soybean market, partially as a result of 4 large U.S. corn crops in a row (2013-2016) and 3 large U.S. soybean crops in a row (2014-2016).  Fortunately, demand for these bushels remains strong in the balance sheet or even larger ending stocks would be weighing on the markets.

These large supplies have, for the most part, resulted in the normal seasonal price response prior to harvest.  As the crop grows and is more assured, there is a tendency for the “risk premium” of supply uncertainty to evaporate throughout the growing season.  The graphs below illustrate this pattern for the last 4 and 5 years.  The black solid line in both graphs represents the price pattern (indexed with January 1 average price = 100%) for the past 5 years of new crop futures (2012-2016).  The red dotted line includes the past 4 years (excluding the drought year of 2012).  In normal or large crop years, you can see the price drifts lower as the crop size is more certain.  This indicates that often the best opportunities to price crops are early in the growing season before crop size is well known.

These large supplies have, for the most part, resulted in the normal seasonal price response prior to harvest.  As the crop grows and is more assured, there is a tendency for the “risk premium” of supply uncertainty to evaporate throughout the growing season. 

The graphs below illustrate this pattern for the last 4 and 5 years.  The black solid line in both graphs represents the price pattern (indexed with January 1 average price = 100%) for the past 5 years of new crop futures (2012-2016).  The red dotted line includes the past 4 years (excluding the drought year of 2012).  In normal or large crop years, you can see the price drifts lower as the crop size is more certain.  This indicates that often the best opportunities to price crops are early in the growing season before crop size is well known.

 

In addition, it seems that price volatility has increased and that opportunities may not last as long as we would like.   This is illustrated in the next graph of December 2015 and December 2016 futures.  These two years had similar pricing opportunities -- 2016’s spike came about one month prior to the spike in 2015.  Neither new crop futures contract spent more than 13 trading days above $4.25!

To capture those short-lived opportunities either the marketer had to be lucky or have an early plan in place to lock in pre-determined price levels.  For an updated marketing tool workbook with example plan templates, videos and the opportunity to learn by experimenting with pre-harvest risk management in a real market simulation, go to http://tinyurl.com/iacrops



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