Such a weighting of the sales is designed to take advantage of the historical probability that sales would exceed the average price for the year. And Johnson says the basis for the contracts would still have to be calculated for the actual average cash price.
When you study your history, as your teacher would have suggested, Johnson says you would find 2011 to be similar to some other years when highs were set from January to April. Those included 2008 (high in June), 2006, and 1995 (highs in November), and 2004 (high in April). With prices continuing to increase, Johnson says parallel years were in 1988, 1990, and 1996 when the highest prices were seen in July. Doubts are being cast that the $6.8375 price in April and the $6.84 last week will be the highs for the year. Johnson says in the past 35 years, only 1 of the 7 years that had higher highs each month through May set its high in April.
Without seeing his price charts, Johnson suggests you consider the line graph of December contract highs for the past 20 years maintained by the ag economists at the University of Minnesota. He says it shows the obvious tendency for the years’ highs to occur during the March through June period. That is an obvious time that is stressful to the market because of planting, emergence, and pollination.
With the tight corn ending stocks forecast for both the 2010 and 2011 crop years, expect extreme price volatility in June and July. However, trying to guess the month with the highest price would be difficult. Consider spreading out your new crop sales over several months. Incremental sales during the first 7 months of the year (January through July) would tend to have a higher probability of high futures prices.