To say that commodity prices have been volatile this year is obviously the ultimate understatement. Since marketing is not my area of expertise, I would like to defer to Melvin Brees, who is the market/policy Extension associate, FAPRI, University of Missouri. In his November “Decisive Marketing” column, Brees offers insight into today’s markets. Following is an excerpt from his commentary.
“Market response to changing news has resulted in considerable price volatility. Any of a number of market factors can turn prices higher one day or result in a price decline the next day. Limit or near limit futures price moves have occurred frequently. From the price highs to the lows since the November USDA supply/demand projection, nearby corn futures prices have had a range of 79 cents per bushel….This has occurred in just over a week of trading! This represents significant market risk on a day-to-day basis….
“So, are prices high enough? Will they go higher? Or are they ready to collapse? No one really knows. Most analysts would not predict a collapse due to the tightening of carryovers, strong demand, production concerns and uncertainty in non-agricultural markets. However, from current price levels, corn, soybean and wheat prices could move higher or lower. Recent volatility suggests that these moves could be substantial.
“Historically, $5 corn prices are good prices. Are prices high enough to make sales? This is the question that producers must answer for themselves or choose a market advisor whose decisions they are willing to accept. Other difficult marketing decisions are how much of remaining old crop supplies should be sold and how to make the sales. When to start or add to sales for 2011 production should also be considered. These are not easy decisions.
“Some guidelines to consider are that it is usually a good time to sell when prices are near historic highs or current year futures contract highs, and prices are at or above projected price ranges for the marketing year. Other signs are upside price potential appears limited, there is downside price risk, the seasonal trend is for lower prices, basis has strengthened, prices generate a favorable return and market carry does not offer storage returns.
“Most of these can be answered with a yes. Current prices may or may not near the eventual market high, but they are high enough to at least consider adding to sales.”
Read Brees’ entire column at www.agebb.missouri.edu.
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