TOP FARMER WEEKLY PERSPECTIVE 5/28/2021 BY BRYAN DOHERTY
Planting Progress Suggests Summer Weather now Paramount for Price Direction
This past Monday, the Weekly Crop Progress Report released by the USDA indicated the planting and emergence pace for both corn and soybeans is ahead of the 5-year average. This suggests that this spring has allowed for timely planting and a good start to the growing season. As of Sunday, May 23, 90% of intended corn acres were planted versus a 5-year average of 80%. Emergence stood at 64% versus the 5-year average at 54%. Soybeans had similar results with 75% planted versus the 5-year average of 54% and emergence at 41% versus 25% emerged. What are some of the key takeaways, and how can producers prepare for the potential price volatility for the upcoming growing season?
One potential takeaway in a year of fast planting progress would suggest a drier weather pattern. Farmers who can get into the field early generally can do so if there is a lack of rain events. All winter, this year’s drought monitor map, published by NOAA, indicated most of the Midwest was in a somewhat precarious position, on the verge of abnormally dry or very dry. Planting progress has been rapid, yet subsoil conditions are a major concern for many who have been on the verge of little or no moisture for multiple months. Western regions in the Corn Belt went into what may be termed a drought late last summer, with conditions still suggesting little or no emergence from a continued dry weather pattern. The obvious potential takeaway is that prices could be exceptionally volatile into the summer months, as rain events become more and more important from quantity and timing perspectives. Recent rains and forecast events alleviated some near-term concerns. Still, there is an uneasy feeling rippling throughout the Midwest that, by late May, it will take timely rains to produce an above-average crop. The same holds for soybeans. Rapid planting is noted with emergence at a strong pace as well. A drier spring, coupled with an inverted futures market, likely incentivized producers to plant beans early or even before corn. Weather for soybeans is generally viewed as most critical in the late July and August time frame. Abnormally dry conditions throughout parts of the Midwest speed this timetable forward.
With high volatility comes risk and opportunity. For multiple months, making no sales has proven beneficial, as prices continue to move upward, factoring various supply and demand elements. Two weeks ago, the markets turned on a dime and gave back significant gains in a couple of days. This may be a precursor to what you might expect this summer, depending on rainfall totals and forecasts. We strongly believe you should make cash sales on price rallies, as higher prices tend to cure higher prices. The potential for a weather market could drive prices substantially higher. Consider using call options to cover cash sales. Options are more expensive in volatile times versus non-volatile. Keep in mind that everything is relative, and buying an out-of-the-money option to save costs may seem like throwing money away. Still, should weather be a factor, prices could move to all-time new highs as tight inventory sets the stage for a springboard rally. If not wanting to make cash sales or hedges which require delivery, then consider using put options. Purchasing a put provides a floor against the futures market. Your risk is fixed to the premium paid. Stay vigilant for opportunities. Learn the risks and rewards of tools to manage risk, as well as leaving yourself open to the market price. Have realistic conversations with those in your management circle that can help you achieve your marketing goals with volatile prices.
If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-334-9779, extension 300.
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