As 2023 unfolds, a divergence between old and new crop futures prices for corn and soybeans continues to grow. Southern Hemisphere weather premium is currently being factored in and supporting prices for stored (old) crop, while expectations for normal weather for the upcoming growing season is keeping new crop contracts steady to weaker.
It is not unusual to see new crop prices fail to follow old crop prices, as the market (in tight supply years like this one) may need to ration old crop inventory. Higher old crop prices, however, typically mean more production for the year ahead. Why? Farmers have more income to work with, and most farmers (on blind faith) intend to grow more and finance additional crop health (think buying fungicide) because of strong revenue from the previous season.
New crop futures remain in (what we are going to term) a slippery slope. That is, expectations that world inventories will be on the rise by fall, and demand (due to high prices this past year) will keep buying practices the same as they currently are, which means buying only as needed.
The slow pace for corn this season is reflective as to how buyers change their mindset from aggressive to a just-in-time inventory approach. When you’re paying a high price for commodities, you don’t buy much in advance of your needs.
The consequence is an environment where importing countries are not willing to stockpile high-priced inventory. Corn exports are running about 50% lower than a year ago for the first four marketing year months. In years when prices are low, export activity is the opposite. Buyers want as much as they can buy in advance to secure inventory at a low price.
The mantra, sell early and sell often, seems applicable for 2023.
Incremental sales early in the year that make sense shouldn’t be dismissed in lieu of the we’ll-wait-and-see approach. Given an assumptive set of cost parameters to produce crops, selling early and often is a strategy farmers can employ to be risk-averse on a portion of the crop without paying high long-term put option premium.
Consider selling a percentage of expected production you are comfortable committing (perhaps 20% to 35%) prior to the planting season.
Current futures prices for December corn and November soybeans are historically high. If variables unfold that have a negative impact on prices, this could lead to the long-term price slide. If you’re not making sales at historically high prices, you may find yourself with a lot of production by late summer, hoping for a price recovery.
Making incremental sales at predetermined price targets, a timeline, or both may help create a strong average price by harvest. Early sales may act like a pully, helping to pull your average selling price higher versus doing nothing.
There’s no shortage of strategies or advice one could employ during a year. The key is to make decisions.
Deciding to do nothing is still a decision which may have significant consequences, either good or bad.
By getting started and rewarding good price levels, you are setting yourself up for success. If prices trend downward, it may give you the luxury to be a less aggressive seller at lower prices because you’ve already sold some of your crop. If prices go higher, you can sell more and average higher. The bottom line of this perspective is to take action.
