When the price of corn goes up at this time of year it is usually because traders are fearful the weather isn’t good for the growing crop. It’s called weather premium and University of Illinois agricultural economist Joe Janzen has written an article for the farmdoc Daily website trying to define the term.
“The historical data shows that prices tend to be higher. They deviate above the harvest time price by, on average, about twelve percent. The range, however, is wide. Sometimes the market can be 50, 60 to 70% higher than it is at harvest, right now during the growing season, but sometimes it can be 30% to 40% below where it ends up being at harvest.”
You heard Janzen say, “right now during the growing season” and he meant that. The historical data suggests early June can, but won’t necessarily, be the highest pre-harvest time pricing opportunity. It is information he says corn farmers should make note of and use.
“Obviously, farmers have some production risk. The data is not saying go ahead and sell everything. But I think you want to have a couple of tools in your toolbox. The big one being to forward-selling using Hedge-to-Arrive contracts as a tool to lock in the futures component of that price or forward contracting. Getting some sales on the books and the opportunity to deliver at harvest if you also want to lock in the basis component of the price.”
Read more about weather premiums in the corn market from University of Illinois agricultural economist Joe Janzen on the farmdoc Daily website here.