Weather Markets are Here
What’s Happened…
When winter fades to spring, attention for row crops begins to focus more on weather developments and how planting and the early growing season may be impacted. For many, this has been a challenging spring due to less-than-ideal conditions. Yet, planting progress has been ahead of schedule for both corn and soybeans. The most recent USDA Crop Progress report indicated 93% of the corn crop planted, the same as the five-year average. Soybean planting was ahead of schedule at 84% complete versus the five-year average of 80%. While spring can have its challenges, the weather that matters most for crop production is yet to occur.
Why this is Important…
As weather developments in June through August unfold, they can have a major impact on expected crop production. As an example, in 2012, the December corn futures price bottomed in mid-June before rallying more than $3, reaching a peak on August 10, as drought conditions reduced crops. The point is that the weather will have its greatest impact on crop production in the months ahead. As the weather goes, so likely will price. Both end users and producers should prepare in advance for weather developments and, consequently, various price change potential. One of three events typically occurs: 1) weather is adequate, creating expected crops; 2) weather is less than adequate, leading to smaller supplies and a price rally; 3) weather is outstanding, creating larger–than–expected crops and much lower prices by harvest.
What can you do about it?
Prepare yourself for future price movement now, when volatility is low. The December corn futures contract has traded at $4.40 in eleven of the last twelve months. While this could continue, it is more likely that weather will be responsible for prices moving in either direction, breaking overhead resistance, or dropping to new contract lows by the fall harvest. A balanced approach is suggested. This means proactively planning for prices to move in either direction. An example is being half forward sold of expected production and the other half protected against downside price risk by purchasing put options. Purchase call options on bushels forward sold so you can participate should prices rally. The key is preparation by planning ahead.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
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