Feed Buying Strategies 

What’s Happened…

The recent slide in corn and soybean meal prices has been significant and eye-opening. A reflection of increasing world inventories, with expectations that whether developments may have little impact on final yield after last season’s large crops despite weather challenges, is keeping downward pressure on prices. In mid-October, the March corn futures was trading over $5.20 and now is under $4. March soymeal has lost over $115 per ton since November. Yet, to suggest that weather is not a factor or that prices can’t appreciate is naive. Value is offered to the end user. Protecting feed costs is important to any livestock operation, and the recent plunge is providing an opportunity that, for many, was not expected.

Why is this important…

The price of feed has not been this low since 2019. In the futures market, large money managers are more net short corn than any time in history. While there may be good arguments for lower prices due to increased world supplies and tepid demand, low prices do tend to cure low prices. More importantly, the market has already moved to levels that one might expect would occur near fall if a good crop was about to be harvested. South American weather is in its full bloom and needs to be conducive to crop production for the next several months, especially the second crop – safrinha corn (planted after soybeans are harvested). Northern Hemisphere countries, where most of the world’s corn is produced, also must make it through the growing season. The bottom line is that it may be easy to assume big crop production, however, it is still paramount to measure your risk exposure and implement risk-shifting strategies.

What can you do?

If you are a feed buyer, recognize that feed prices have substantially lost value and now it is time to act.  There is merit to moving away from buying only as needed. Not planning and executing could prove devastating, should adverse weather conditions create an environment where managed money goes from massively net sold to a net buyer. While this may seem unlikely today, history has taught us that changes occur, sometimes quickly. Have conversations with your feed vendor and ask what can be done to lock in longer-term needs. In addition, become familiar with how paper tools such as buying futures, call options, and bull call spreads work, and how you can implement them. The bottom line is that now is not the time to get comfortable. There’s too much uncertainty in the months ahead in producing crops domestically and worldwide. If the markets have taught us anything over the last several years, it’s that volatility is alive and well, and price direction and momentum can change quickly. Market mindsets and perceptions can change virtually overnight. Prepare yourself. 

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

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