By ANDREA JOHNSON, Assistant Editor Thursday, April 27, 2006 12:18 PM CDT
This just might be a good time to check into some forward pricing opportunities.
Chicago Board of Trade prices on April 21 included May at $2.36 1/2, July at $2.47, September at $2.58, December at $2.70 1/2 and March at $2.79 1/2.
The price spread of May at $2.36 and December at $2.70 offered producers a carry of 34 cents for seven months. Betsy Jensen, Northland Community and Technical College ag commodity instructor, says that spread is something producers should take a look at. A typical spread is 40 cents for a year.
“Producers have to remember there is a full, full, full carrying charge from May to December. They are paying you a lot of money to store your corn,” said Jensen. “It is definitely advantageous to make some new crop corn sales at these levels. It is an exceptional carrying charge at this point.”
The soybeans and the wheat markets do not offer great carrying charges at this time.
“There is good increase in demand for corn right now - we're all hopeful about ethanol,” she said. “But we have to look at the fact they do not want corn today - they want corn in December.”
Following USDA's March 31 Prospective Plantings Report, corn futures moved 21-23 cents higher. From early April to late April, corn prices moved down 6-7 cents on the nearby but only 1-2 cents for December and March 2007.
According to the Chicago Board of Trade website, improved weather prospects are allowing producers to seed corn rapidly. The rapid planting has triggered early weakness and selling in wheat and corn.
But higher energy prices have balanced out trader expectations for a big crop based on early seeding. Fund buyers -- interested in alternative energy sources - are looking at the potential of corn as ethanol in the future.
“You're talking about a very bearish old crop, and a potentially bullish new crop,” said Jensen. “Which one of these wins out - we're not going to find out until August.”
The Adult Farm Business Management program for northwest Minnesota just completed their analysis, said Jensen. Everyone had a very good corn yield last year, but the amount that producers earned per bushel varied greatly.
Producers who forward contracted corn and collected the LDP made as much as 50 cents more/bushel than producers who did not forward contract and simply collected an LDP.
“Unless we have crop problems, there is a good chance we're going to have an LDP again this fall,” said Jensen.
She reminds producers that diversity is one of the keys to reducing risk. Forward contracting doesn't mean committing the entire crop.
“When it comes to forward selling, you are not selling the entire crop,” said Jensen. “If corn does go up - you still have half of your crop to sell. If corn goes down - you can double dip with an LDP on the first half of the sale and probably still do okay.”
As producers start getting bullish on corn, it's good to remember those piles of corn that are still sitting in bunkers across the region.
Cash corn prices posted on the Toolshed Ag Information Network on April 21 showed a corn trading range of $1.59-1.95/bushel. Those prices were 10-20 cents lower than in early April.
At one elevator in west central Minnesota, corn was $1.95 with a basis of 53 cents under on April 21. The price had dropped by 6 cents, and the basis had widened by 11 cents since early April.
The best advice I can give is listen to the market and give them corn in December,” said Jensen.
