Using Timeframes to Market Corn and Beans

By Tracy Sayler

Stan Stevens likes to begin a marketing workshop by asking producers whether grain marketing is something they look forward to. He says the audience is usually split: about half the producers like marketing, about half don’t. Further, some producers are more conservative in their marketing approach, while others are more willing to be risk takers on the notion of nothing ventured, nothing gained.

That’s why the University of Minnesota extension ag economist says it makes sense to develop a framework for marketing advice that provides enough elbow room for producers with different marketing styles. Stevens has done so in two marketing backgrounders for corn and soybeans that outline seasonal price characteristics.

“For those who are more conservative in their marketing approach, it helps them find a timeframe for a good price and be done with it,” says Stevens. “The only marketing effort involved is finding the discipline to execute sales according to the seasonal plan. For those whose marketing approach is more aggressive, this paper helps provide a baseline to help measure what they’re accomplishing.”

In his corn and soybean marketing backgrounders, Stevens reviews five general timeframes for making marketing decisions:

1) Pre-loan review (July to December): The seasonal history of this period suggests that more often than not, better prices are possible in the spring.

2) Loan review to planting (January through May): This is generally an attractive period for selling, with pricing opportunities better than the previous fall by about 10 cents per bushel.  The rewards for holding into the summer are not there, and the possibilities to do just as well by holding into the storage season are questionable.

3) Summer selling (June to September): This is historically a very poor time to be selling.  The possibility to recover back to missed opportunities in the spring is real, but it is usually a struggle to get all the way back.

4) Harvest (October to November): This is probably not a favorable time to be making sales. Delivery of previous sales made for fall delivery are fine, but here the question is when to set the price, regardless of when it is scheduled for delivery. The fall period typically does not offer attractive prices relative to what was offered in the previous spring, or is likely to be offered in the following spring.

5) Storage (December to September): The spring after harvest, prices often recover to levels close to those that could have been obtained the previous spring, but tend to fall short by a few cents per bushel. In the meantime, working capital is tied up, and all the risks of maintaining the condition and quality of the stored crop are present.  Sales made the previous spring are likely to offer better results.

Long-term holding over multiple years is not a good idea, according to Stevens. Not only are there storage costs to consider, but basis appreciation from fall to spring is given back from spring through the summer as the old crop encounters competition from new crop supplies.

One way to sidestep this is to sell corn or beans after the period of basis appreciation, probably in the spring but certainly by July 1, and replace the grain with a futures contract. The summer decline in the value of the stored crop relative to the futures price is then avoided.  Grain ownership is retained instead as a futures position, which, if in fact prices do go up, will reward the holder.

Long-term holding of futures contracts, where contracts are sold just before expiration and then replaced with subsequent futures contracts that have become available with more deferred expiration dates, usually don’t work out well.  That’s because the sought-after benefits from higher prices in the future are not captured when the replacement contract consistently costs more than the contract this is being replaced.

Stevens says marketing timeframes for corn and beans are a “cleaner cut” than wheat.  “Corn and beans are concentrated in a geographic area relative to weather systems, and the number one determinant of the price environment is built in the summer period. Wheat is more diverse geographically.  With soybeans, there is South America, but it’s still not like wheat.”

The papers by Stevens on corn and soybean marketing can be found on the Internet at http://www.apec.umn.edu/pubs.html.