Strong corn and soybean contract prices on the Chicago Board of Trade present farmers with "unusual selling opportunities," said a
"The increases in futures contracts are surprisingly high this year," Brees said. He attributes those increases to technical trading and speculative buying.
Futures contracts for March soybeans have ranged from $6.10 to more than $6.30 per bushel, more than a $1 per bushel above the USDA forecast average cash prices. March corn contracts have run from $2.10 to $2.30 cents per bushel, more than 30 cents per bushel higher than predicted cash averages.
Recent projections from USDA showed season-average prices at $5.35 for soybeans and $1.80 per bushel for corn. The next USDA report will be issued Jan. 12.
Currently, Brees said technical traders are watching chart patterns for when soybeans challenge prices at $6.50 at the top and $6.15 a bushel at the bottom. If daily trading breaks through the top price objective, there will be more buying, driving up futures prices and potentially increasing cash prices at local elevators.
If the price breaks below $6.15 there may be a rapid exit from the market. Prices will begin to drop.
Farmers can watch those chart lines to anticipate what technical traders will do, Brees said.
In the case of soybeans, "If the price does go up past $6.50 just hold onto the grain. However, if the price drops below the bottom chart line, it would be a market signal to sell part of the (stored) crop.
"When waiting for a price above $6.50 don't miss a chance to capture $6.15," Brees said. "It is awfully difficult to pick up the phone and say 'sell' when you've seen higher prices.
Technical traders chart price movements and make buy-and-sell decisions strictly on prices, Brees said. When prices go above a chart trend line, they buy. When prices drop below a chart trend line, they sell.
Traditional marketers, including most farmers, look at market fundamentals. Those include world supply of grain plotted against expected demand from livestock feeders, food manufacturers, and new demand from ethanol and biodiesel plants.
"Fundamentally, there is an awfully big corn and soybean supply in the world," Brees said. "We are coming off of a large crop in 2005, following a record-setting yield in 2004. There is a lot of grain in storage."
The USDA projects a corn carryover of 2.4 billion bushels and a soybean carryover of more than 400 million bushels.
"You could call that corn supply burdensome on the market and the soybean supply extraordinarily large," Brees said. Supply has kept a lid on price forecasts based on anticipated demand. "Supply and demand still work in economics," Brees said.
The MU economist attributes increased futures activity, and rising prices, to outside investors who don't normally trade commodities.
"When the economy begins to soften, traders start looking for places to put their money that are solid, such as commodities, instead of in paper, such as stocks and bonds. Traders usually buy commodities such as precious metals, energy, industrial metals, and even coffee, cocoa, orange juice or pork bellies," Brees said. "I'm sure that when they see low prices on corn and soybeans, they are saying 'those commodities are undervalued.'"
New money coming into the market drives prices up; however that money can depart quickly, forcing prices down.
For a farmer holding grain, the futures market offers a "pricing opportunity" well-above prices indicated by market fundamentals. "When the market is being driven by technicals, it is good to look at the technicals," Brees said.
His advice to farmers is to take some money from the outside investors. He never recommends selling all of a crop at one time; but suggests selling portions over the marketing year. "You won't sell everything at the top price of the year, but you can beat the average."
An MU FAPRI newsletter, "Decisive Marketing," by Brees is available on the Internet at http://www.fapri.missouri.edu/