Assume Normal Weather in 2024 for Marketing

What’s happened…

Impactful weather in 2023 was noted, as parts of the U.S. experienced the hottest summer on record. This impacted crop production, especially in the southern U.S. The Corn Belt may have escaped extreme heat. Coupled with timely rains, that helped the crop mature better than most farmers anticipated, despite lower-than-average rainfall totals. On the one hand, many farmers were blessed with better yields than they anticipated. On the other hand, due to heightened weather uncertainty all growing season, advance sales were generally less than normal. This has led to observations that may be impactful for 2024.

Why this is important…

World supplies are on the rise and, unless there is a significant shortfall of crops domestically or elsewhere, price rallies will likely be limited. Still, there will be opportunities to take advantage of rallies when they occur. It is not unusual to see a market rally while anticipating some weather impact, only to have prices decline if weather conditions improve. When prices drop, they often do so quickly. If you’re not prepared for these moves, you may miss out.

How can you prepare yourself? Read on to learn about some tools you can use and have in place. When market action happens and you don’t have time to react, your plan jumps into action.

What can you do?

Use price targets to be a seller on a portion of your expected production. If you struggle with the concept of having orders filled when prices are rallying because you worry that further advances may occur, then consider making incremental cash sales so that you’re not selling too much too quickly.

Additionally, when prices are in a sideways-to-lower pattern as they are currently, now may be a good time to purchase call options. Call options give you the right to own (not the obligation). Ultimately, having a call option in place should provide reasons to sell cash when prices rally.

Price rallies can also be defended using put options. Puts provide the right to sell without the obligation to sell. They are flexible and have multiple uses throughout the season. By having puts in place, you can establish a price floor. Puts have flexibility as well. As an example, say prices rally in the winter months and you purchase puts. Let’s also say prices drop sharply by July 4. You may be able to move out of your puts if you feel a market low is in. You do not have to wait until harvest.

Good farming and tillage practices, genetics, and expectations for mostly normal weather conditions suggest average to above-average yield is in the favor of the producer. Though every year is different, we believe it’s best to assume a good production year. This generally means prices move lower once the market has confidence a crop is on its way. Therefore, consider the mindset that, in addition to defending prices, your marketing efforts should include sales. A balanced approach (cash sales combined with puts and calls on crop you intend to sell at harvest) is an approach to help shift risk and still participate in price rallies. Talk to a professional to learn how these tools may work for your operation. Position yourself so that, no matter which way the market moves, you are prepared to manage the volatility.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a 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 tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the 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