Use seasonality of grain markets to your advantage

By Tracy Sayler

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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.

f seasonal trends are any indication, there will be a market rally headed your way soon. And when it does, be quick to use it for old and new crop sales, advises Wayne Olson, account executive with

"Market when a profit is attainable, and use seasonal patterns. Lows are typical in the fall, and highs in the spring," says Olson (see charts). The seasonality of grain markets often runs parallel with farmers’ activity. "When you’re planting, you’re not selling. When you’re harvesting, obviously, there’s a lot of grain around." He points out, though, that seasonal price trends are not an exact science: there are years when the wheat market has been higher in the fall, for example.

Olson says sluggish demand and plentiful stocks continue to loom over the wheat, corn and soybean markets. Carryout for all three crops will be higher at the May 31 close of the 1998/99 marketing year compared to 1997/98. But there will be rallies, weather-related as the northern hemisphere growing season draws near.

Some market expectations for 1999:

Wheat — Loan activity on wheat has been weak this winter: under 400 mill. bu. in loan entries compared to the loan deficiency payment, which has been taken on over 1.3 bill. bu. That means there’s a lot of available wheat that can move to market, which may mute rallies. U.S. wheat supplies are expected to be around 3.3 bill. bu., about 300 mill. bu. higher than last year. Expect export pressure unless a production problem occurs. But not all is negative: Global wheat carryout at the end of 1998/99 is expected to be down almost 500 mill. bu. from 1997/98. U.S. acreage, supply, and carryout will drop in 1999/00. With a less-than-burdensome supply of wheat in the world and the expected reduction in acres, we cannot afford to have a significant crop loss.

Soybeans— Acreage in the U.S. is expected to increase 2% over last year. Along with a slight increase in South American acreage, demand for U.S. beans is expected to fall sharply. High use of the LDP (about 1.2 bill. bu. out of a 2.5 bill. bu. crop) could also prove to be negative as producer funds run short.

Feed grains— Corn stocks are expected to build another 415 mill. bu., the third year of stock rebuilding and the largest ending stocks since 1992/93. Use of the loan program could keep considerable amounts of corn off the market (823 mill. bu.) providing short term support. The LDP has been taken on 3.1 bill. bu. out of a 9.8 bill. bu. crop. On the plus side, U.S. plantings are expected to be down 2 mill. acres this year, and U.S. exports are expected to rebound modestly.

Olson says production problems elsewhere in the world, and any U.S. crop problems, could change the outlook.

"We like to see you use several different things in combination as you market your grain," says Olson. One element should be a cash forward contract. You’ll be obligated to deliver a certain amount of bushels at a certain time period, but the upshot is that you’ll be locking in a higher price on seasonal price strength.

Along with forward contracts, there are appropriate tool to consider for different market scenarios. When you expect the futures market to rally, strategies to consider include a basis-fixed sale, delayed price sale, or the "do nothing" approach, which is simply waiting to sell until prices improve. If you expect futures to fall, the best contracts that provide protection are the to-arrive sale, minimum price sale, or put options.

For more details on these tools, call Olson at 1-800-800-4618, and request the Benson-Quinn Commodities booklet handed out to producers who attended MN Grain Update meetings this past winter, sponsored in part by the Minnesota Wheat Research and Promotion Council.

Further, new and renewing members of the North Dakota Grain Growers Association and Minnesota Association of Wheat Growers are eligible for a free trial subscription to the RML Trading Newsletter. For more information on this and other membership benefits, check out this web site:
www.smallgrains.org/springwh/mar99/member.htm.

"Taming of the Bulls and Bears" is a market education feature of Prairie Grains, made possible by the Minnesota wheat checkoff administered by the Minnesota Wheat Research & Promotion Council. If you have a question or topic you'd like to see addressed in this feature, send it to:
MWRPC, 2600 Wheat Drive, Red Lake Falls, MN 56570. Phone: 1-800-242-6118. E-mail:
mnwheat@means.net.