Beware the Harvest Price Slide

More often than not, grain prices can be expected to slide downward between planting and harvest, according to seasonal trends. 

These tables compiled by Ed Usset, grain marketing specialist for the Center for Farm Financial Management at the University of Minnesota (www.cffm.umn.edu), show May 1 versus October 1 prices for wheat, soybeans, and corn from 1980 to 2003.  The majority of the time, there were better pricing opportunities in the spring.

That’s not always the case, however, as the last three years for soybeans indicate.  Still, these historical trends combined with strong prices this spring makes preharvest new crop grain sales this year a no-brainer. “I never suggest selling 100% of your expected new crop.  I would suggest that given prices this spring, consider pricing up to the amount of crop you have covered by crop insurance,” says Usset. “Then hope you get a bigger crop and have even more to sell.”

A grain price that’s under loan is the one scenario where Usset says producers would be better off passing on spring sales in favor of better pricing opportunities later in the season. Obviously, that’s not a problem this year. “Look at today’s prices relative to the loan rate. Even on an average farm, I bet it’s a $100,000 difference.  That’s what today’s prices mean to the revenue picture this year. Crop producers have had incredible preharvest pricing opportunities available to them this spring.”

The big question: how long will these prices last? Whether prices slide into harvest depends simply on the weather this growing season. The greater the outlook for more bushels, the more likely prices will fall. Comparing nearby crop futures prices with futures for distant trading months can give producers a hint for where the trade expects prices to trend. The soybean market, given this year’s acres, seems most poised to take a fall as the season progresses, if the growing season is favorable for production.

Usset says an excellent web site for grain producers to bookmark is Robert Wisner’s home page, www.econ.iastate.edu/faculty/wisner . Wisner is an extension ag economist at Iowa State University.  Among the many useful links on Wisner’s web site is the link “Balance Sheets,” as a PDF.   Here, Wisner keeps track of corn and soybean (limited wheat) supply/demand numbers, and gives different price scenarios that might be possible under a below-average crop, average crop, and above-average crop.

Wisner updates his balance sheets monthly. The following table sums up his S/D-based price scenarios updated after the March 31 USDA prospective plantings report.  Bear in mind that these – like any price forecasts – are “educated guesses,” highly dependent upon unknown market factors such as weather and exports. 

December Corn, 1980-2003
17 years (71%) the market declined an average of 38 cents/bu.
7 years (29%) the market improved an average of 37 cents/bu.

1980 2.95 3.49 0.54 1981 3.77 2.87 (0.90) 1982 2.93 2.20 (0.73) 1983 3.03 3.53 0.50 1984 3.04 2.78 (0.26) 1985 2.64 2.26 (0.38) 1986 2.04 1.77 (0.27) 1987 1.87 1.84 (0.03) 1988 2.27 2.95 0.68 1989 2.64 2.39 (0.25) 1990 2.70 2.29 (0.41) 1991 2.53 2.54 0.01 1992 2.53 2.12 (0.41) 1993 2.43 2.43 0.00 1994 2.58 2.14 (0.44) 1995 2.63 3.11 0.48 1996 3.33 2.90 (0.43) 1997 2.76 2.56 (0.20) 1998 2.62 2.05 (0.57) 1999 2.31 2.05 (0.26) 2000 2.62 1.99 (0.63) 2001 2.27 2.11 (0.16) 2002 2.20 2.56 0.36 2003 2.33 2.20 (0.13) Ave. 2.63 2.46 (0.17)

September Spring Wheat, 1980-2003
15 years (62%) the market declined an average of 41 cents/bu.
9 years (38%) the market improved an average of 46 cents/bu.

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 0.08 1984 3.90 3.96 0.06 1985 3.63 3.19 (0.44) 1986 2.92 2.68 (0.24) 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 0.16 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 (0.47) 1998 3.61 3.08 (0.53) 1999 3.33 3.44 0.11 2000 3.35 2.97 (0.38) 2001 3.47 3.16 (0.31) 2002 3.01  3.80  0.79 2003 3.39  3.70  0.31 Ave. 3.67 3.59 (0.08)

November Beans,1980-2003
15 years (63%) the market declined an average of 85 cents/bu.
9 years (37%) the market improved an average of 84 cents/bu

1980 6.45 8.12 1.67 1981 8.27 6.46 (1.81) 1982 6.78 5.29 (1.49) 1983 6.78 8.58 1.80 1984 7.13 5.90 (1.23) 1985 6.06 5.14 (0.92) 1986 5.24 4.88 (0.36) 1987 5.34 5.45 0.11 1988 7.14 8.17 1.03 1989 7.24 5.77 (1.47) 1990 6.55 6.05 (0.50) 1991 6.09 5.89 (0.20) 1992 6.05 5.33 (0.72) 1993 5.96 6.18 0.22 1994 6.28 5.38 (0.90) 1995 6.06 6.37 0.31 1996 7.58 7.49 (0.08) 1997 6.96 6.21 (0.75) 1998 6.17 5.15 (1.02) 1999 5.14 4.81 (0.33) 2000 5.80 4.90 (0.90) 2001 4.34 4.52 0.18 2002 4.56 5.42 0.86 2003 5.53 6.87 1.34 Ave. 6.23 6.01 (0.22)

Price forecasts below by Robert Wisner, Iowa State University extension ag economist.   Below Average Supply/Use Average Supply/Use Above Average Supply/Use Corn 2004       Harvest price central Iowa $3.75 $2.40 $2.10 Dec futures @ harvest $4.10 $2.75 $2.45 Long-term probability 15% 65% 20% Soybeans 2004 - 05       Iowa avg price $8.80 $5.55 $5.15 Nov futures @ harvest $9.30 $5.85 $5.50 Historical probability 22% 65% 13% Wheat 2004-05       U.S. farm price $4.60 (low yield) $3.65 (avg yield)