Friday, May 24, 2024

Production: Market Signals

CS Oct 09 CoverMissouri market analyst Melvin Brees on market
signals and outlook.

What are the markets going to do? The better questions to ask are: What are the markets telling us? And how do I use that along with market outlook information? The USDA’s Sept. 11, 2009 supply/demand estimates included record new crop corn yields leading to record large total corn supplies and record soybean production. The large crop size is tempered by record expected 2009-10 use for both corn and soybeans. The USDA’s projected price ranges are from $3.05 to $3.65 for corn and from $8.10 to $10.10 for soybeans. The supply, use and price projections suggest that it would be reasonable for prices to follow a normal seasonal price pattern.

This could mean lower price trends into harvest followed by a post-harvest price recovery. However, as pointed out, there are risks in these fundamental market factors. Following the USDA September reports, December 2009 corn futures prices have had a range of 38 cents per bushel and November soybeans a range of 84 cents. This price movement occurred in less than a week! A sharp price rally to limit or near limit price gains was triggered by weather forecasts of frost or freezing temperatures and fed by short futures position liquidations. The rally faded, and prices slipped lower as the weather forecasts began to moderate.

To Store Or Not To Store
The corn futures market is offering a storage premium or market carry. March 2010 corn futures prices have been more than 13 cents higher than the nearby December 2009 contract prices. The May 2010 corn futures prices have offered nine or more cents of additional carry. The market appears to be signaling to store corn. However, understand that there is risk in storing corn without price protection. When the futures market offers carry, it is also a weaker demand signal. Corn supplies appear to be more than adequate to meet demand. Buyers are content to not acquire corn for future needs by bidding up nearby contracts to acquire inventories. They are willing to let someone else own and store the corn.

Slower than expected demand or higher production could result in increasing carryover and disappointing prices, which would limit or eliminate storage returns. If a decision must be made between which crop to sell and which crop to store, the markets continue to say: store corn and sell soybeans. Storing corn may avoid unattractive prices, and selling soybeans captures profitable prices.

Combining market outlook with market signals generally provides information needed for more successful marketing decisions.

Read Melvin Brees’ “Decisive Marketing” in its entirety at

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