Crop statisticians with USDA’s National Agricultural Statistics Service will soon be venturing into corn and soybean fields to begin collecting data for the August 1st Crop Report, which is the first objective yield survey of the new crop. The acreage has been established and the only unknown is the yield, which will be estimated on August 10. While it will be only 17 days until the report is released, a lot can happen in those 17 days to market prices. Is it a good time to sell grain?

Across the Cornbelt crop conditions range from excellent to poor. There will be some 200 bushel corn and some 20 bushel corn, and there will be some on both sides of that range. It is the same for soybeans. Selling grain based on the crop in your field is hard to do, so let’s step back to look at the wider view, offered by Outlook Specialists Melvin Brees at the University of Missouri and Allan May at South Dakota State University.

Melvin Brees, in his July Decisive Marketing newsletter, says, “Market analysis and paying attention to market signals can provide clues for when it is a good time to make sales.” And he offers some marketing basics:
It is usually a good time to sell when:
1. prices are near historic highs or current year futures contract highs,
2. prices are at or above projected prices ranges for the marketing year,
3. upside potential appears limited,
4. there is significant downside price risk,
5. the seasonal trend is for lower prices,
6. basis is strong or at least expected to weaken, or
7. prices generate a favorable return.

With those principles in mind, what about corn? Brees says:

• Although December ’07 corn futures have traded nearly $1.00 off of recent highs, prices remain at levels occurring only about one-fourth of the time in the last 35 years. Current price levels rarely occur in nearby futures at harvest time. (Principle #1)
• New crop cash bids are priced within USDA projected 07-08 corn price range, but a few are near the bottom of the range. (Principle #2)
• Upside potential may result from the need to bid for 2008 acres and any production disappointments could push prices back toward highs. Retracements to $3.85 or $4.00 (50 percent and 62 percent technical retracements) are still possible with weather concerns and strong demand for corn even if prices don’t return to previous highs. (Principle #3)
• Large acreage and potential for large production with increasing carryover suggests possible downside risk at these prices. But downside may be limited because demand is strong with more production needed in year ahead for ethanol. (Principle #4)
• The season price trend is usually down after the crop reaches the pollination stage. (Principle #5)
• Weak new crop basis suggests weak cash demand and lack of storage availability are contributing to cash prices that are in lower part of expected price range. Stronger basis in old crop bids suggest active current demand. Ethanol plants and large corn users are bidding for deliveries, which are reflected in some new crop bids as well. (Principle #6)
• Prices near $3.00 should generate profits unless serious production problems reduce yields. (Principle #7)
• Many technical signals (broken uptrend, short term down trend, broken technical support, etc.) suggest limited upside potential with numerous areas of strong resistance to limit up moves. (Principle #3)

Allan May says the decline in corn prices really began in late June and the recent volatility has taken us back to a point equal to last October, which is 80¢ to $1 under the February highs. In his recent corn newsletter, he says the volatility will continue and both he and Brees advocate pricing corn if you have not already done so, “Be prepared to make additional sales if prices move higher and be sure to put a “backstop” price on this market to insure that you make sales if prices move lower in the face of potentially improving weather conditions that would stabilize or improve production of 2007 corn.”

Let’s take a look at soybeans. Brees says:

• Last week November ‘07 soybean futures prices exceeded $9 before falling back into the $8.00 range. While well off the highs, historically these are still high prices and are price levels rarely available at harvest time. (Principle #1)
• In spite of the sharp price break, Missouri new crop cash bids remain within USDA’s projected 07-08 soybean price range. (Principle #2)
• Higher price potential may result from reduced acres and tightening of carryover supplies. Poor weather into August could push prices higher. (Principle #3)
• Lower price risk due to large world supplies and market signal for South America to increase production. In addition, the soybean/corn price ratio of about 2.6/1 heavily favors soybeans and is not likely to continue due to strong ethanol demand for corn and the need for increased production in 2008. (Principle #4)
• The seasonal trend tends to be toward lower prices from mid-summer into the fall harvest season as production prospects become better known. (Principle #5)
• Weak basis for both old and new crop cash bids suggests weak cash demand for soybeans.
• Prices at $8.00 generally represent rare opportunities for significant profits. (Principle #7)
• Broken short term uptrend is a technical signal that the price trend may have reversed and is a sell signal. Market carry does not offset storage costs, suggesting that delaying sales and storing may not pay. (Principle #3)

Allen May acknowledges the issue of the horrible basis in the bean market in his bean market letter, and from his vantage point, the basis is $1.30-$1.45 under futures prices, all because of abundant local supplies to feed the local demand. He says if you sell now, you give up the chance for higher prices, but protect a good price now. And he adds, if you wait, you may get a higher price, but could lose a good price now, if the market declines. “Remember, profit is the name of the game; don’t let greed get in the way of making sound marketing decisions.”

Summary:
Both Brees and May, from the southern and northern sides of the Cornbelt, could not agree more on the profitable prices the market is still offering, even after $1 was lost in recent trading sessions. As the August crop report approaches, many private firms will be issuing their own estimates of the crop, and the market will experience increasing volatility with both the potential for more losses and gains. Many marketing tools are available to farmers, in the cash, options, and futures market to protect profits that are currently being offered.