Issue 30
June 2000
 

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Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Association.

Copyright
Prairie Grains Magazine
June 2000

Grain Market Gleanings

By Tracy Sayler

Odds against weather trumping seasonal price pattern
Don't let the hope of big weather-scare rallies later in the growing season preempt you from making old and new crop sales this spring, advises Ed Usset, who conducts market analysis for the University of Minnesota and others. "There's often a price bias in the spring, but more often than not what scares us goes away and the price declines," he says.

There's been plenty of drought speculation thus far this growing season, but offsetting that are fairly large stocks of wheat, corn, and soybeans still on hand, and a good planting start in many areas of the Plains which often translates into better yields.  Usset notes as well that some weather experts are forecasting an end to the La Nina weather pattern that's behind the dryness.  "We have the possibility of planting into dry soil, then it may start to rain, and then we'll get what's known as a crop."

Seasonal price movement May 1 to Oct 1
In 13 of the last 20 years (1980-1999) or 65% of the time, Mpls Sept. wheat futures declined an average of 42 cents per bushel from May 1 to August 1 (see chart). The Sept. wheat contract moved higher an average of 43 cents in 7 years, or 35% of the time.

 September Wheat at the MGE

Year

1-May

1-Aug

Change

1980

4.13

4.68

0.55

1981

4.65

4.21

(0.44)

1982

4.05

3.88

(0.17)

1983

4.00

4.08

0.09

1984

3.90

3.96

0.06

1985

3.63

3.19

(0.44)

1986

2.92

2.68

(0.25)

1987

2.87

2.60

(0.27)

1988

3.13

4.12

0.99

1989

4.19

3.93

(0.26)

1990

3.61

2.81

(0.80)

1991

2.95

2.88

(0.07)

1992

3.55

3.06

(0.49)

1993

2.99

3.15

0.15

1994

3.34

3.34

(0.00)

1995

3.65

4.73

1.08

1996

5.93

4.70

(1.23)

1997

4.39

3.92

(0.48)

1998

3.61

3.08

(0.53)

1999

3.33

3.44

0.11

Avg.

3.74

3.62

(0.12)

13 years (65%) the market declined, an average of 42 cents per bushel
  7 years (35%) the market moved higher, an average of 43 cents.
Chart analysis: Ed Usset, for the University of Minnesota

From May 1 to October 1 in the last 20 years (1980-1999), November soybean futures at the CBoT declined 14 of those years (70% of the time), an average of 83 cents per bushel.  In only 6 of those 14 years (or 30% of the time) did the market move higher, by an average of 88 cents.

Dec. corn futures at the CboT also declined 14 out of the 20 years (70%) an average of 40 cents per bushel.  In only 6 years out of the last 20 (30%) did the market move higher from May 1 to Oct. 1, an average of 37 cents.

Moral of the story, says Usset: Get something sold this spring. "If nothing more than to have balance in your marketing," he says. 

Use the loan rate to guide sales, particularly for corn and beans.  "I'm not interested in selling for less than loan for corn and beans.  But both have been performing better than loan, so consider getting up to half sold by the end of May," Usset says.  "The loan rate isn't as applicable to wheat.  Right now with Sept. wheat futures at $3.50, wheat is a bit undervalued, so try to sell old crop wheat yet this spring, but you don't have to be as aggressive at selling new crop wheat as with corn and beans."

Longer term: Uptrend in the making?
Though more bears than bulls still seem to be found in the markets these days, and seasonal harvest lows can be expected, the worst of the price slump of the last few years may be over.  "Hopefully, the crop price lows are in.  I think we're at the beginning of an uptrend now, although time will tell," says George Flaskerud, NDSU extension crops economist.  The outlook for reduced grain supplies in the 2000-01 marketing year compared to the last few years is a key reason for more promising prices on the horizon.

Setbacks and rallies until crop is made
Expect price rallies and setbacks until traders have a better handle on where crop production this summer is headed, says Flaskerud.  Like Usset, he advises producers to take advantage of the spring (April to early June) time period for pricing opportunities.  Forward contract no more than a third of your new crop production, then use put options (for wheat, consider December  2000 delivery; March 2001 for corn; and November 2000 for beans) to establish downward price protection.

Although timely, appropriate grain marketing strategies may be profitable, these strategies involve risk, and Prairie Grains nor sources cited assume liability for their use.