The turn of events has been very dramatic. Yields in corn and soybeans continue to come in higher than expected. High prices have cut demand substantially in both corn and soybeans and now we will be paying the price.
In my September column I pointed out why the odds were extremely high that corn and soybeans would make their annual top during the month of September. The odds in favor of that happening were overwhelming given the fundamentals of both the corn and soybean market as well as the general U.S. and world economies.
Since that was written, corn prices have dropped by over $2 per bushel, soybeans have dropped by $3 per bushel and wheat and cotton have had similar declines.
Needless to say, the trend has turned and while rallies can be expected, the grain markets have made a long-term top — whether people want to accept it or not.
In marketing we often state that a producer needs two plans — Plan A and Plan B. Plan A is a scale-up selling program that works fine as long as the bull market is intact — selling more at higher increments. But once the market has turned and the trend is changed to down, it is important to go to Plan B, which is what to do now with the grain that wasn’t sold in the scale-up selling program. That’s where the majority of producers are right now — Plan B.
The turn of events has been very dramatic. Yields in corn and soybeans continue to come in higher than expected. Not to mention that the most important factor is, as I have stated many times, the laws of economics have not been repealed. High prices have cut demand substantially in both corn and soybeans and now we will be paying the price.
In addition to demand being cut, planted corn acres are going to be up substantially next spring and thus the shift toward the negative side of fundamentals in prices should be intact for a good while.
What to do
In early September subscribers to our newsletter, The Brock Report, were encouraged to go 80 percent to 100 percent sold on the 2011 corn and soybean crop and 40 percent on the 2012 corn crop and 50 percent on the 2012 soybean crop. Those who followed those recommendations are in extremely good position today.
For those who are not in those positions, however, the odds of getting the prices that were available in early September are quite slim. There will, as has always been the case, however, be other opportunities.
Once harvest is complete, farmer holding of grain will become very tight. So then it is important to start setting targets as to what prices are reasonable for the 2012 crop. Here are some thoughts for catch up sales.
In the December ’12 corn contract, I seriously doubt that the market will be able to get back to $6. $5.75, maybe. In any case, rallies in the $5.75 to $6 level should be used to get at least a third of next year’s crop sold.
If there is concern on getting next year’s crop planted, which shouldn’t be in November and December but sometimes is, then there is an outside chance of $6 to $6.25. Use that range to get up to 50 percent sold on next year’s crop.
In the November ’12 soybeans, while this is a wide range, I would be targeting the $12.25 to $12.75 range for catch up sales. Here again, the odds of that are probably not real high but are somewhat reasonable.
If these ranges are not hit by the time Jan. 1 rolls around, then I’d be patient until late winter or early spring. There are rallies in all bear markets, it’s just a question of from where.