Grain Markets at a Critical Junction
What’s happened…
Volatility has picked up for corn and soybeans with wild price swings, uncertain weather, USDA reports and war all contributing to differing opinions for price direction. Yet, the biggest factor in front of the markets is the weather. As the weather goes, so probably will prices. A dry spring allowed for rapid planting progress for the core of the Midwest. Prices in both commodities reflected this by moving lower while, at the same time, a maturing crop from Brazil hinted at a large crop.
December corn futures bottomed out near $5.91 on May 18 and November soybeans near $11.30 on May 31. Soybeans have since rallied and remain in an uptrend. Corn futures quickly jumped to 6.30-3/4 on dry weather concerns, only to rapidly plunge on calls for rain, cooler temperatures and a surprisingly large acreage estimate on the June 30 USDA Acreage report. Prices plummeted with December futures reaching a new low of $4.81 on July 13. As of this writing, December corn has added back nearly 60 cents from low to high. November soybeans have reached their highest price since late December, trading over $14.00. A bullish acreage report for soybeans and longer-range forecasts calling for warmer and drier are supporting prices.
Why this is important…
In mid-July all focus is on the weather. Over the next several weeks, weather developments will decide price direction. Competition from Brazil for both corn and soybeans and a lackluster export market suggest that, if weather is positive for crop production, both commodities could be on the defensive. Expectations for December corn to reach $4.50 is a possibility. November beans could retrace back down to the $11.50 area. Yet, if crops are challenged with less-than-ideal conditions, there is the possibility of December corn to trade above $6.00 and November soybeans over $15.00. Volatility is likely to stay high.
What can you do?
When prices rally, this is the time to consider purchasing put options to establish a price floor. The buyer of a put has the right (not the obligation) to sell futures. Unpriced expected production can gain in value. For those who wish to forward sell, consider purchasing a call option to re-own. The key is to consider an approach that keeps you long (owner) if weather drives prices higher and short (sold) if prices decline. Markets have a way of tumbling fast. Make it a goal to strategically keep your marketing approach balanced. Talk to a professional to plan a strategy best suited to you and your operation.
Another strategy to establish a price floor is to utilize put options. The buyer of a put has the right (not the obligation) to sell futures at the level of protection (strike price) purchased. The advantage of a put is that if futures prices go higher, unpriced cattle can gain in value. Your risk is limited to the premium paid, commission, and fees.
Doing nothing is also a strategy, however, this may be considered extreme. If prices continue to move higher, you are in great shape. If they move lower, you may experience a lot of pain.
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.
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Bryan Doherty