What are some ways a grower can ensure they will get the best price when selling soybeans?
By John Dietz
Interviewed in early September, Alan Kluis, the president and managing partner of Kluis Commodities, Wayzata, Minnesota, was saying that the next “best time” to sell soybeans will probably begin in the second half of November and run until the year end.
If that holds true, the beans in your bins should be sold by then. After that, it may be May again before there’s another good pricing opportunity.
Probably, now is the worst possible time to sell your soybeans, according to Kluis.
The problem is, soybean markets are seasonal – and the seasonal timing changes.
“Right now, the demand for soybeans is huge from China,” Kluis says. “As someone who’s traded for over 40 years, I can say you generally want to be selling your crop ahead — during the May-June time period.”
In May and June, growers had their last good pre-harvest sales opportunity. The futures price on the Chicago Board of Trade was U.S. $10.50 to $11.00 per bushel.
Now, with harvest about to start, the seasonal low is approaching.
“The seasonal low in soybeans is between the first of part of October and the first part of November. This is a time to avoid making sales. If you can hold off, quite often there’s a window between mid-November and the end of December that gives a better selling opportunity than the month of October,” Kluis says. “For now, try to store the beans. Try to maintain ownership.”
But, seasonal cycles change. The timing of seasonal soybean lows is variable. Sometimes the low cycle starts in early September; it can also be delayed into late November.
When the low cycle does begin, it can last a couple months. As a general rule, always avoid selling in October and February.
The cycle will turn up again.
Kluis is blunt on this: “When you get a new seasonal selling opportunity, you have to be disciplined and sell the hell out of it.”
Is the May-June high predictable?
“Every year is different, but it works about 80 percent of the time. This is a complicated business; I’ve done this for 40 years, and it has worked for 30 of those years,” he says. “2012 was an exception. Everything went pop all year. You had major highs in September. The people that did nothing that year made out very well, but that’s unusual.”
Sell 10 percent, ten times!
There’s a whole other article in the details of “how to” sell, but it boils down to a choice: sell for cash now, or sell ahead for future delivery. The choice depends on the grower and the grower’s comfort with risk.
“If a guy is comfortable selling cash, that’s what he’s going to do. If a guy is more sophisticated, watching his futures, he can sell into that,” Kluis says.
To spread the risk, have a plan in place. Set some price targets that are above the current market, and try to wait for a rally.
“If you need to sell some, and if the Board of Trade gets back up to $10.20 or $10.50, you should take advantage of the rally. We are seeing some very, very volatile commodity markets. It’s possible that you may have multiple sales plans in a short time.”
Kluis suggests, “Do ten sales of 10 percent to spread your risk.”
As prices begin to rise, sell once; if the market goes higher, sell another again.
“Last June, we sold about 40 percent of the crop in one week. The market was heading up, up, and away, and we just kept selling into it. We sold cash crop from 2015 into it, and we sold a lot of the 2016 crop. By July, the market tipped over and those sales all looked good,” he says.
So, what’s a safe call for forward selling in June?
“Look back at your historic average,” he says. “We have forward sold what we thought was 60 percent of a conservative yield. In the event of a major shortfall, grain companies will work with you because they want to buy your grain again in the future.”
Timing soybean sales on convenience, cash flow needs, or travel plans is really risky.
The idea that you’re going to sit on your farm and be able to hit the highs in the market is really not good risk management. Once prices start to move up, you stay on it. You just sell units of 10 percent, and you never look back, he says.
“You’ve got two risks: production and price. You have to balance the two, and you have to stay in your comfort zone.”