New Highs New Opportunities
What’s Happened…
In recent weeks, a flurry of activity in commodity markets with new highs posted in cattle, corn, and wheat are providing new opportunities for producers to shift risk and take advantage of opportunities. In what might be the busiest time of the year may also be the most critical time for marketing. History has told us the corn market can quickly lose value once the spring high price occurs. Cattle prices continue to grind higher, breaking records. Therein, however, lies the risk. The higher a market rallies, the quicker and faster a drop can occur. Tight cattle supplies are supportive, yet consumer demand must support higher prices. Wheat prices are finding support as weather concerns both domestically and globally could impact supply. However, world supplies are presently considered ample as indicated on last month’s WASDE report as world carryout rose 6 million metric tons from expectations.
Why this is Important…
Pricing opportunities, when they do occur, are often short–lived. Now is the time to reevaluate what it takes to manage the recent rise in prices. The “why” of a rally can be layered with many variables that are challenging to either understand or outguess. The area of concentration should move away from why the market may be moving and instead revert to strategy. This means working toward a balance of sales and re-ownership. It means new conversations and pushing the pencil to determine the costs (both real and opportunity) of protecting price. Various strategies such as forward selling, hedge-to-arrive, put option purchases, short futures, or perhaps more advanced option strategies are all on the table. Finding the right mix of strategies for you and your risk tolerances is key to execution.
What can you do about it?
First, carve out time and dedicate it solely to marketing. This is a challenge in spring and still necessary. Second, connect with your internal team (unless it is just you), and discuss the current markets, your thoughts, and marketing alternatives. This keeps everyone informed and reduces the second guessing that can and often occurs in more volatile markets. Third, communicate with your team outside of the farm operation, which includes your lender, buyers, and suppliers. Ask critical questions. Write these questions on paper before you talk so you are not side-tracked. You will be armed with information to communicate with your internal team or make decisions if doing it alone.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty