Seasonal selling works again in 2023

In late August, when the heat index outside topped 110° F, the “frustration index” boiled over too. 

On one of those Sunday nights, corn prices opened sharply higher, but then sold off hard up until the close of trade Monday. Prices fell even more the next day. After the markets closed Tuesday, I got a red-hot phone call from a farmer in western Minnesota: “I am watching my corn and soybean yields move lower every day. I talk to friends and relatives in other states and they report the same … but the grain markets keep moving lower! Why? Do you guys even care? What will make things turn around?” 

I know how the markets trigger emotions, so I always stay polite and respectful when I get a phone call like that. I can feel and understand the fear and frustration as the income per acre moves lower day after day. Yields shrink and the CBOT tanks, creating an environment that can take profit margins into the red.

Helpful charting patterns

When receiving calls like this, I ask a lot of questions about how the farmer makes grain marketing decisions, and what percentage of the cash and new-crop inventories the farmer has to sell. Often, I can help reduce or eliminate the fear just by listening, but not always the frustration. 

When it comes to weather markets and trading, I learned a long time ago about the stress of market drama: First, grain prices are cyclical. Second, the news is always bullish at the top. Third, the news is always bearish at the bottom. All three of these features of the grain markets are inevitable, and all three cause stress and sometimes panic. 

This is why I use my charts to make decisions. My charts take the day-to-day news and emotion out of the decision-making process. They help me put current changes into a larger context, and they remind me helpful patterns are often underway, if I can stay calm and find them.

Now let’s go back to that “hot” August phone call. The grain markets didn’t respond to the record high temperatures and lower crop conditions when it turned hot and dry in late August for four reasons. 

1. Grain prices are cyclical. Part of the price movement that month was standard for August. Unless we are in an extreme drought covering more than 40% of the Corn Belt (as in 2012), corn and soybean prices, especially cash prices, usually go lower in August. The large cash price premiums disappear by late August, and usually corn and soybean futures move lower. 
2. We have much better corn and soybean hybrids than 10 (and certainly 20) years ago. This new high-tech seed can take a lot of stress. You still end up with a better-than-expected yield when the combines roll. The markets now expect that.
3. Export demand is slow. Russia keeps selling cheap wheat, and Brazil is unloading its large 2023 corn and soybean crops. Month after month, USDA keeps cutting projected corn and soybean exports. Even with a smaller corn and soybean crop, we have adequate ending stocks. 
4. Grain prices were lower in August than they were in June. However, if you look at the long-term price chart, corn and soybean prices were still high compared to the average price over the past 10 to 20 years.  

Now the action part of the question: What will it take to turn prices around? I explained that I thought that was the wrong question. Instead, I suggested he try to think about what he can do differently to make better decisions in these very volatile grain markets. 

I gave him the same suggestions I would give you. 

Tips for better grain marketing

First, take a spreadsheet approach to making grain sales. This means you don’t wait for that fictional “top” price. Instead, you calculate your breakeven, and you start making sales above that — incremental sales. If prices move higher, then keep making incremental sales. 

Second, you also take a calendar approach. Learn to be a seasonal seller and to make cash sales in May through early July (and to avoid making any sales from August through October). One autopilot calendar plan for sales is simple but effective: Make a series of 10% sales from late April through late June. This plan works year after year. 

Third, understand the risk of holding cash grain, and understand the risk in making (or not making) new-crop sales. If you do not use a spreadsheet, at least write out how many bushels you have of cash corn and soybeans. You must monitor your current basis and cash bid, and what the bids are out 30 to 60 days. 

As my caller calmed down, he asked a lot of questions about how the grain markets worked. I asked a lot of questions about his farm and how he made decisions. He told me he still had about 30% of his 2022 cash corn and soybeans. I explained that the cash market 30 to 60 days later was 50¢ lower for corn than the current cash bid and the soybean bid was over $1.00 per bushel lower. Holding cash corn and soybeans was likely to be a bad marketing and financial decision. 

Actually, I didn’t think it was a question of “if” cash corn and soybean prices would collapse, but only a question of “when.” I gave him one firm but specific recommendation during our conversation: Call your elevator today and get the rest of your cash corn and soybeans sold. At first, he disagreed, saying he was waiting for a rally. Then I explained that on the days the futures rallied, the cash basis bids widened (and the risk remained). As a result, holding the cash corn and soybeans was a lose-lose proposition. 

For his new crop, he had some corn sold and no soybeans. He had 85% revenue protection crop insurance and had plenty of storage for the 2023 crops, if he sold the cash corn and soybeans and cleaned out his bins. I still encouraged him to sell some $13.20 new-crop soybeans. However, with the low December corn futures and his high revenue protection level of crop insurance, he would be OK. I reassured him that it is frustrating to watch the corn market go down, but he did not have any additional financial risk. 

After a 40-minute conversation, his last comment was, “Well, I suppose not all of you guys are so bad.” (That is what we call a Minnesota compliment.)

And for the record, yes, I do care.