What is the marketing plan for the crops you are harvesting? Have they all been sold? Are you holding any unpriced grain? What protection do you have against any downside movement? Or are those questions you’d prefer to ignore and hold your crops until the price gets better? Sorry to ruin your day, but if you are planning to take advantage of good prices over the next few years in the demand market, you’d better have a marketing plan.

Nearly all of the private commodity advisors and the university marketing specialists look for markets to get stronger once the 2006 surplus soybeans are consumed and the 2007 bumper corn crop is whittled away. In the meantime prices could take unusual turns as the result of greater South American production or adverse trade issues, and suddenly the premiums evaporate. To protect against that, consider a marketing plan that addresses a strong market carry and a weak basis.

At the University of Missouri, marketing specialist Melvin Brees says cash corn is currently in the middle of the USDA marketing range and cash beans are above the USDA marketing range. But he says, “Regardless of price, weak basis is a market signal to avoid cash sales. As a result, many producers will likely choose storing the grain over harvest time deliveries or sales.” Brees says even though corn production is at a record high and may still get bigger, and the carryout is large and may still get bigger, corn prices are stronger than at the time of the USDA report which forecast that scenario. He says that is positive!

Corn. The “carry” in the market, reflected by higher prices in more distant futures contract months, indicates there is money to be made by storing grain until then. “May 2008 corn futures prices have offered a price premium (or carry) of more than twenty-five cents per bushel over December 2007 futures prices. The July 2008 corn futures contract offers nearly thirty-five cents of carry.” To take advantage of that scenario, Brees says, “The market carry can be protected, or “locked-in,” by using futures hedges or some form of deferred delivery cash contract.”

In the coming year, strong domestic demand from livestock and ethanol, as well as for exports will require another large crop, and many observers expect the market to bid for acres. That is being done with the $4 corn offered for fall 2008 delivery, and Brees says the market could break out of the current 45 cent trading range, but a good marketer will watch the market for storage strategies. He says if negatives develop, such as a weakening of demand or a sluggish economy, then the outlook will not be as good. “Corn marketing plans should include strategies to capture basis gains and deciding whether to speculate on market trends or pro¬tect market carry. Besides strategies to capture higher prices, these plans also should include downside price targets or trap prices to help avoid the risk of a market decline.”

Soybeans. The soybean market is focused on declining supplies from the current record surplus to a level next August that might hint at rationing. That may be exacerbated by the lower yield estimates this year that might decline as time goes on. In the middle of the marketing year will be a healthy crop from South America, the size of which won’t be known until after the first of the year.

Unlike corn, the carry in the soybean market is weaker, and Brees says it will not cover storage costs, “The price premiums for January 2008 soybean futures (sixteen cents) and March 2008 futures (twenty-three cents) will only cover about one-half of the cost of storing soybeans. More distant futures contract months (May, July) offer little or no additional market carry.” Without a better market carry, producers will have to depend upon basis improvement, but large supplies and high energy and transportation costs are not letting that happen very quickly.

With the reduced supplies next August, the market is telling producers to plant more beans in 2008 as it bids against corn and wheat for acreage. Of course, South American producers will be capturing some of that market premium. Currently the new crop soybean prices are discounted from the old crop about 35 cents. Even if prices for the 2008 crop rise, that does not mean prices will also rise for the 2007 crop.

Brees believes there is more risk in storing beans than corn, since beans are already above the estimated marketing range for the year. However, to gain any additional value from soybeans, he says it will have to come from the basis, and marketers will have to closely watch for a top in the market.

Summary:
A weak basis and a strong carry in the market are signals for storage. But corn and bean markets have some different dynamics that will dictate different marketing plans. Corn has a strong carry, which will pay for storage costs, but the basis has to be monitored while the market is expected to continue bidding for 2008 acreage. Soybeans have current high values but a weak basis. While the carry in the market is negative and will not pay for storage, the basis will strengthen as the supply is reduced, and that may provide a return to storage.