Sell now or store

Corn growers see market options Sell it now or store it and sell it later. Basically, those are the two options available to Southeastern corn producers as harvest season winds down, says George Shumaker, University of Georgia Extension economist.

"We also must consider that our income from corn is comprised of two different parts," notes Shumaker. "Those include the income we'd get from selling the crop, whenever we sell it, combined with the loan deficiency payment or producer option payment from the government. Corn growers must look at both of these sources and try to find ways to maximize them."

This can be difficult, considering that whenever cash prices are low, the LDP's are high and vice versa, he adds. "Based on this, we probably need to look for ways to decouple the collection of these two sources of income. In other words, we want to take the LDP when we feel it is at its highest. Then, we want to price the corn whenever we have the best marketing opportunity for our corn crop," says Shumaker.

Given these "rules of the game," growers now can begin to fine-tune their marketing plans for the 2000 corn crop, he continues.

Trends outlined "Typically - and I don't think this year will be any different - we see our lowest corn prices of the year during the Midwestern harvest, and we're now entering that period. I think that we'll be very close to seeing our seasonal low during this time.

"That would imply that the LDP's may be at or near their seasonal high. Our growers need to keep a close eye on those factors and consider claiming those LDP's or POP's over the short-term," says the economist.

If a grower is forced to sell corn because he doesn't have any storage capacity or because he needs the cash, then he'll be selling at relatively low prices, says Shumaker. But that would be offset to some degree by the higher POP payments.

"On the other hand, if a grower has the ability or willingness to store corn, he also should consider claiming the POP's now, and then look for ways to sell corn out into the future."

There are two reasons, he says, for a grower to consider holding corn and looking to forward sell.

"Normally, in Georgia, we see a considerable basis improvement from our harvest period toward late winter and early spring. That basis typically can increase by 30 to 40 cents. This is our cash market rising relative to the futures price.

"This occurs because we have a strong demand for corn but limited local production. Corn users must be more aggressive in their bids to attract local corn. In addition, because we don't supply enough corn, we have to `rail in' corn from the Midwest. This leads to increased transportation costs for the corn user and an improved cash price for our growers."

By storing corn, a grower can take advantage of this situation, says Shumaker. The entire cost of holding grain usually will be returned to the grower, he adds.

Another reason for considering storing corn is the futures market, he says. "The deferred contract months are trading at a premium to the nearby months. For example, the December contract is trading at about $1.89 while the May contract is trading at $2.08. The futures market is paying a premium of about 19 cents to hold the crop until next spring.

"When we combine that premium in the futures market with a potential increase in basis, there appears to be a strong incentive to hold corn. But growers shouldn't wait before claiming the LDP. If we are at or near the seasonal low, we should see the futures market rising as we move into the winter months. This would imply that our LDP will go lower. In 1999, we saw our highest LDP's occurring prior to the end of the year. Then, once we entered the new year, our LDP's fell."

Not as good The longer-term outlook for the 2000 corn crop is not very good, says Shumaker. "We have a very large supply of corn. This means that we're going to find it difficult to generate a rally absent further reduction of the crop size. And this becomes less likely over time."

The only other factor that could cause a substantial price rally is increased demand, he says.

"We can point to a couple of good signs here," says Shumaker. "The Southeast Asian economies appear to be improving, and we'll probably sell a little more corn there. Another good sign is that the U.S. Senate approved granting China permanent normal trade relations with the United States. This offers the potential for increased corn sales.

"Also, as our fuel prices continue to rise, energy prices rise and ethanol becomes more competitive. But the market also sees these things, and they're probably close to already being factored into the market until something changes."

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