NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

September 10, 1998

The Market Advisor: Strategies for a Depressed Market

George Flaskerud, Extension Crops Economist
NDSU Extension Service

Generally good production around the world has driven commodity prices to very low levels. The wheat, corn and soybean crops will be large, so what follows are some marketing ideas for dealing with those large crops:

Take the loan deficiency payment (LDP) on wheat now and continue storage because the wheat price is very likely near the bottom. During the larger-than-expected 1990 crop year, the spring wheat price bottomed in November but was very close in September, according to North Dakota Agricultural Statistics.

Storing the wheat crop until next spring now appears to be the best strategy. The current basis is poor and limited improvement is expected this fall. Upside potential in the basis and price are expected by next spring because of reduced acres, extra grazing, substantial feeding, USDA's donation program, possible imports by China, farmer holding and weather uncertainty.

Consider spending 10 cents on call options next spring after selling the wheat. That is the best way to speculate on weather rallies in `99. If wheat is held into the summer and a weather rally does not materialize, the low prices of `98 could be realized all over again. This combination of LDP, storage and buying a call option after selling probably does the best job of facilitating longer-term cash flow.

Storage of durum until spring also makes sense. The durum price should benefit from gains in the spring wheat price, plus durum acres may be reduced. North Africa's durum crop (harvested next spring) is always uncertain, and durum farmers typically are strong holders.

Taking the LDP on corn during the last half of the U.S. harvest looks promising, and storing until spring should be profitable. The hope is that China will be purchasing, although smaller-than-expected exports to Southeast Asia is a risk. As for wheat, spending 10 cents on a call option next spring is the best way to speculate on weather.

Taking the LDP on barley and oats now may be the best strategy, the same as for wheat. Storing until spring should bring higher prices as corn stocks, and especially U.S. and Canadian barley stocks, are drawn down. The burdensome level of European Union stocks is the negative factor.

The LDP for soybeans should also be the greatest during the latter part of harvest. This crop should also be stored, although perhaps not until spring. South American acres and yields and Chinese imports are major uncertainties for the soybean price outlook. January or February may be the best deadline for selling this crop. The purchase of call options next March or April may be the most risk-averse way of betting on crop problems next summer.

For sunflowers, the LDP should be the greatest during harvest, and storing until spring should be profitable. Seasonal strength into spring is usually a good bet for this crop. Not only is the size of the South American soybean crop uncertain, but vegetable-oil stocks are snug and China is a possible buyer of vegetable oils. On the negative side, a large sunflower crop in Argentina could dampen seasonal strength. A similar strategy may be reasonable for canola.

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Source: George Flaskerud (701) 231-7377

Editor: Dean Hulse (701) 231-6136