TFM Perspective 05-03-2024

You Expect Good Crops; Market Accordingly


What happened….

Year in and year out, you take on the challenge of growing crops. In most years, you likely produce an average or better-than-average yield. Improved tillage practices, equipment, genetics, and farming practices place the odds in your favor. Yet, we all know your crop is a few weeks away from adversity, mainly weather, which can change the course of production.


You plan to be a successful producer. No one plants a crop expecting failure. You prepare for unexpected production adversity with crop insurance. Yet, as was the case this past year, many did little to protect prices. Last summer there was a good reason why many producers didn’t make sales. Dry weather remained a dominant factor. Even with “good” prices available well before the growing season, “good” is a relative term. Here, we’re comparing late fall 2022 and early 2023 prices ($6+ corn and $14+ soybean futures) to current sub-$5 corn and $12 soybean futures.


Why this is Important…

History provides a chance to reflect and learn. For many, crop production in 2023 was better than expected, however, marketing was a disappointment. The simple explanation is that many producers were hoping for better prices and may still be holding too much inventory. The end user knows this and is taking advantage by buying only as needed. Speculative interest by large traders remains near record-short according to the weekly Commitment of Traders Report. In addition, higher prices from 2020 through 2022 led to increased production worldwide. Unfortunately, with increased international competition and the world’s biggest consumer (China) struggling economically, there is a realistic downside potential of $4.00 for December corn futures and $10.50 for November soybeans.


Cash flow for most producers was good from 2020 through early 2023 and has since tailed off. While many farmers may be in a good cash position today, concerns for the future have many feeling stymied and not comfortable making marketing decisions at current price levels. Understandably, a limiting factor for selling ahead with cash contracts is the risk of selling too much and not being able to make delivery. Taking on undue price risk can be costly, both financially and emotionally. It is now as important as ever to be disciplined and strategic.


There is plenty of time for price rallies. It is important to also recognize that, unless there is an adverse weather event, big supplies domestically and worldwide limit rally potential.


What can you do?

If you have not already done so, consider marketing now for the upcoming crop. If you don’t care to forward contract at current prices levels, contemplate purchasing put options or using more advanced strategies to shift risk. It is important to consider different pricing scenarios.


Set reasonable target prices above the current market price. Plan to build on cash sales if prices do move higher. A more advanced option strategy is purchasing a put and selling a call, otherwise known as a fence. In a fence, you are fencing in a range of prices. This strategy has an inherent risk of additional margin requirement for the short call(s). On the positive side, the cash value of unpriced expected production can increase on a price rally. Another strategy is to forward sell and purchase call options to capture upside potential. All strategies, including doing nothing, have some element of cost and risk.


Invest time to learn about strategies that are best suited for you. Engage in conversation with those who are knowledgeable and can guide you through the process of executing the right strategy at the right time. Always be sure to understand the risks and rewards of any action, including the action of waiting.



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.


Bryan Doherty

Sign up to get daily TFM Market Updates straight to your email!

back to TFM Market Updates