If you are among many farmers with 2007 corn yet to sell, you may not yet have a price target, but do you have a timetable for pricing your unsold corn? Since corn prices may rise to “who knows where,” should your marketing be based on the same timing principles that have guided you for many years? Let’s think about that for a moment.

The market was not anticipating the changes made by USDA in its final 2007 crop report, in which production was lowered, feed use was raised, and carryout was lowered to just over 1.4 billion bushels. Purdue economist Chris Hurt says that may be a lot of corn, but the way the ethanol market is refining it so rapidly; it will be insufficient as a carryover. His recent newsletter says higher prices and rationing must continue. And he says the market needs to buy 2.5 million more acres than it did prior to the report, which he says points to $5.25 to $5.75 corn and that will cut hard into the livestock industry. Export demand is insulated by the currency rates and industrial use can pass on the higher prices to consumers.

But when will the high prices occur? Chris Hurt says over the past ten years, corn prices have tending to peak between mid February and mid May, which is reasonable to expect this year. So farmers have a 30 to 90 day window to price most of their unsold inventory. For an orderly marketing plan, Hurt says be 40% marketed by now, and 75-80% sold by mid May. He also suggests selling any remaining cash inventory by that time and buying call options to take advantage of additional price increases.

Hurt’s colleague, Melvin Brees at the University of Missouri, also says he does not know how high prices will go, but it is likely that you will not sell at the high in the market, and that downside risk is more considerable because of the increasing volatility. Brees also endorses making incremental sales that spreads sales over a wide time period and helps sell some of your grain before any break in the market.

Brees says option strategies can also work, if you want to sell your cash grain and re-own it on paper, even though option premiums could be costly. Those might include an option “fence” which is the purchase of a put option and sale of a call option to reduce premium costs. Or a vertical strategy of buying an at the money option and selling an out of the money option will also reduce premium cost, but any option sale will possibly expose someone to margin calls.

Melvin Brees also say, “The potential for higher prices exist, but downside price risk is present as well. It seems hard to go wrong selling at current prices, but selling decisions are never easy in volatile markets. While no strategy is perfect and getting the market high is not a reasonable goal, a variety of market tools can be used to manage price risk and avoid missing out on good prices in uncertain markets.”

And Purdue’s Chris Hurt acknowledges, “Marketing decisions are going to be stressful. Try to keep emotions at a minimum by having and following an orderly plan of pricing. As you price new-crop, also consider attempting to lock in input costs. Crop insurance decisions will also be critical, so keep studying your alternatives and talking with market advisors and crop insurance sales agents.”

Summary:
The corn market is in uncharted territory and no one really knows how high it might go, which puts stress on farmers with unsold grain. Instead of targeting price levels that may or may not be reached, an alternative is to sell grain in an orderly fashion over the next 30 to 90 days, which puts it within a marketing window that has seen the highs over the past 10 years. If there is a further desire to profit from the market, that might be achieve with the use of options, and certain options strategies can be used which will reduce premium costs.