TOP FARMER WEEKLY PERSPECTIVE 4/29/2022 BY BRYAN DOHERTY
Back to Balance
A table has four legs. Cut one off and you have an unstable table. A flat tire makes for a bumpy, slower drive. If a wheel falls off, you have trouble. Marketing is no different. Without a balance, you are lopsided. The higher prices go, the easier it is to avoid making any crop sales. No action will only work for so long. The questions are, how long can you hold out without making sales, and what sales decisions are you going to make?
Grain prices are historically high. Old crop corn is priced at $8.00 and new crop (corn to be produced in 2022) is priced near $7.50. Soybeans are near $17.00 for crop in the bin and $15.00 for what you are about to grow. Wheat prices (depending on variety) are trading near $11.00 and $12.00. All are historically high, and high for a reason. Tight world inventories and the need for large crops has added value. For nearly seven years, after the U.S. drought of 2012, supplies were on the increase and both grains and oilseeds were considered cheap, spending much of their time at or below the cost of production. This created a growing demand base. Fast forward to a smaller crop in 2019 due to a late U.S. spring, followed by a crop that lost yield in 2020 late in the season due to drought, with a derecho storm in Iowa, and supplies began to tighten. The 2021 crops in the U.S. suffered local pockets of challenging weather and the crops were not as large as they could have been. The Canadian crops were off significantly. A drought in South America this past growing season has tightened supplies even further. Now a war in Ukraine threatens exports of 2021 crop and a smaller crop for 2022.
So, back to the question of how long you can hold out without making sales. Given the above-mentioned supply challenges, there does not appear to be a compelling reason to aggressively reward the market. Yet, history has proven that farmers (domestic and worldwide) have risen to the challenge year-in and year-out. High prices create an environment to produce more and consume less. Should that model hold, despite the current vision of tight inventory and strong demand, it is a matter of time before prices begin to move lower. (True, we will need good crops.) You will continue to do the best you can to grow your crops, and so will every farmer. The odds favor more supply. Yet, what if there is another challenging growing season?
Approach your marketing with the mind set that price activity can change and change significantly. Create a balance. Make responsible and appropriate cash sales. Waiting to “see what happens” could prove disastrous, especially in a year of rising input cost. Talk to members of your success circle. Seek advice, not emotional responses. Do the math. Consider spending the money on call options to cover cash sales, or buying the puts against crop you don’t intend to sell. It is a matter of planning. Plan now. Your immediate priority is to farm. Planning your marketing, however, should also be an immediate priority, given the current prices of your crops.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.