Alex says: The grain market goes up and you don’t want to sell yet. The grain market goes down and you don’t want to sell, because it might go back up. You say, “What is the definition of ‘Quandary.’” And Alex says: “You’ve just won Double Jeopardy!" If you are in a quandary over your marketing plan, your potential profits are in jeopardy. So instead of playing games with you revenue stream, let’s figure out how to win.

You have been watching the corn and soybean market as spring approaches. The demand for corn has been pushing prices higher. But the soybean industry, fearful of having a shortage of beans, has been keeping pace, with soybean prices moving higher. Your high school physics teacher taught you that everything that goes up must come down, and the markets are no different. Today we’ll visit with authorities who can help you solve your quandary.

In his monthly Decisive Marketing letter, Melvin Brees of the Food and Agricultural Policy Research Institute (FAPRI) of the University of Missouri, “feels your pain” about when to pull the trigger on 2007 crops, “There appears to be upside price potential, maybe a lot of upside potential! No one wants to sell at $4.00 if prices may go to $5.00 or more. But there is also downside price risk with a great deal of uncertainty about increases in corn demand and production potential in 2007.” And Melvin probably shares your goal as well, when he says, “The goal should be to capture higher prices if offered and at the same time not let current profitable prices slip away without making sales.”

If we are still on the same page, Brees suggests you think in terms of “price traps,” which he says are downside price targets with the objective of capturing profitable prices before they collapse. “December futures prices have been supported near the bottom of the price range near $3.87. Penetration of this price support, would suggest prices will move lower.” He says placing a price trap or a downside price target just below that level would offer the opportunity to capture profitable prices before a market downtrend accelerated. You can accomplish that with a broker if you are using futures or at the elevator if you are working with cash contracts.

At the University of Minnesota, grain marketing specialist Ed Usset says in his Ed's World newsletter there have been no other years similar to this one in the market, and “We are sailing in uncharted waters.” You, like Ed Usset may have already sold some of your 2007 crop somewhere under the lofty levels of today (or maybe tomorrow.) But he says what’s past is past, look ahead toward the balance of your 2007 pre-harvest sales, and consider timing in the April through June period (known as the tractor seat bounce.) Usset says, “Clearly I am taking a risk – the $3.90 Dec’07 price that we look at today could easily be 50 cents lower in 3-4 months. The same is true of November soybeans at the current $7.65 per bushel price. I do my best to manage risk, but some risk cannot be avoided.”

Your objective should not be to sell at the highest price, since you’ve sworn off caffeine and have no further reason to visit the local coffee shop but to brag. But your objective should be having a good average selling price. And don’t feel bad if you miss the highs, the professional advisory services miss the highs all of the time. Usset says, “ In the most recent AGMAS report I learned that for the 2004 crop year, the average cash corn price received by 27 professional advisory services was $2.40 per bushel. The highest cash price available to anyone that year was about $3.20 per bushel (that’s based upon a Dec’04 high closing price of $3.37 per bushel in April of 2004, and assuming a 17 under basis for Southern Illinois). Think about it: the “pros” (and many more of us) missed the high by 80 cents a bushel – 25%!!”

So if the professional marketers can make a 25% error, don’t feel bad if your error is only 10% or 15%. Marketing is always a challenge. But it is harder when prices are at a minimum and there is only 10 cents of volatility. When prices are higher with volatility more than $1, there is much more room to make a profit, and marketing is less of a challenge.

Summary:
The quandary presented by the current grain market can be addressed with two solutions. Realize that you won’t hit the top of the market, and strive for a high average selling price which might be achieved during the spring months. Secondly, talk to a commodity broker or elevator manager about establishing price traps or sell stops under current market levels, then adjusting them upward as the market moves higher. Those will allow you to achieve high prices, should a downtrend gain momemtum.