TFM Perspective 08-04-2023

Rain and Cooler Temperatures Send Prices Lower

What’s happened…

On Monday July 24, December corn futures closed 32 cents higher, closing at $5.72-1/4, anticipating hot and dry conditions to create issues for pollination as well as ear-filling. However, the forecast changed, calling for additional moisture and a cool-down in temperatures. This quickly had prices on the defense of the rest of the week. On Monday, July 31, prices slammed lower, reaching their lowest level in two weeks, as copious rain fell in many parts of the Midwest. The extended 8-to-14-day forecast predicts the entire central United States to have normal to above-normal rainfall and normal to below-normal temperatures. For both corn and soybean producers, the weather outlook could not be much better. While drought conditions persist, timely rains and cooler temperatures in a year of extremes are setting the tone for stabilizing or improving crop conditions.

A similar scenario also occurred toward the end of June when hot and dry weather continued to propel prices higher, with the calendar year high scored for December corn at $6.29-3/4. A change in the forecast and rain on the radar helped to quickly alleviate the rally and within two weeks, corn prices dropped to their contract low of $4.81-3/4. Despite the second worst rated crop since the drought of 2012, according to weekly USDA ratings figures, there is still a chance for national yield to do better than one might have expected weeks ago. Timely rains and genetics are being offered as reasons for a national average yield expectation near 175 bpa. The current estimate from the July WASDE report was 177.5 bpa – a record. Poor export demand and a record-large Brazil crop are also factors limiting price rally potential, and reasons contributing to fast price drops.

Why this is important…

What jumps out on both price rally occasions is how quickly futures retreated. Why? Drivers of demand remain mostly constant (ethanol and feed) while exports remain slow. When the market senses better weather conditions, price premium is quickly lost. Additionally, corn supplies are expected to grow in the year ahead with projected 2023/2024 carryout forecast at 2.262 billion bushels, an increase of 860 mb, or 61%. Bearish traders take solace in the trend of increasing carryout. In other words, supplies are expected to grow while demand remains sluggish.

Historically, price rallies due to dry weather concerns can quickly disappear if the forecast changes. In June of 2022, despite hot and dry conditions into mid-June, a cooler and wetter outlook emerged and started the market on a path to where it lost $1.85 in four weeks. The point is, when the drop occurs, it usually is quick, and hard to identify when prices start their initial decent. Trying to watch the market daily and knowing when to pivot from a bullish scenario to bearish can be a challenging and difficult environment to execute new orders. There is no shortage of producers that intend to make sales, however, opportunity sneaks by too quickly for many, and the opportunity is quickly lost.

What can you do?

The market offers tools to capture opportunities. Consider placing price (limit) orders above the market, and allow them to get triggered as prices rally. You could also place good-until-canceled orders to purchase puts to establish a price floor. Another strategy is to place sell stops on futures so that when prices drop, they trigger a sale.

Visit with a professional to learn the tools available to you. Learn the risks and rewards of each scenario. See what will best suit the needs of you and your operation. Then, take action.

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.


Bryan Doherty

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