Is the Ship Leaning Too Far to One Side?
What’s happened…
Corn, soybean, and wheat prices have been in an extended downtrend dating back to 2022. At that time, futures peaked in spring for corn; early summer for soybeans and wheat. The big picture perspective indicates managed money remains short futures. The weekly Commitment of Traders report is close to historical all-time high short positions by managed money for corn and wheat. Prolonged periods of downtrends tend to wear on traders and farmers. Pessimism grows as the market continues to lose value. Are prices too low too early in 2024?
Why this is important…
What is too low? For many producers, selling products near or below the cost of production is too low, at least at this time of the year. The flip side is the end user who can buy at (what is likely viewed as) a bargain. Bargains do not last forever, nor do difficult times. With corn ending stocks (carryout) above 2.1 billion bushels and soybeans approaching 300 million, it is somewhat challenging to be optimistic for a price recovery. Ending stocks represent the amount of supply left over at the end of a marketing year. For both corn and soybeans, this is August 30. Carryout for one year becomes the carry-in for the next year. The price of grains and oilseeds tend to trade in the opposite direction of the trend in carryout. As an example, if carryout is increasing, prices are generally decreasing.
Now that nearly four months of the 2023 crop has been used, actual supplies on hand are decreasing. End users, in bigger supply years such as the 2023/2024 marketing year, tend to purchase supplies on an as-needed basis. There is no urgency to buy ahead. With January soon to end, attention will focus on future supplies. Southern Hemisphere weather is more critical than ever. The bottom line is that prices may be at an inflection point. There are a couple scenarios that could play out. Supply continues to grow, due to good weather in South America, and prices drift lower. Or, with corn, wheat, and soybean prices lower than they have been in several years, adverse weather conditions affect expected production and prices rally – perhaps quickly. If that happens and there is a rush by end users to cover needs, speculators may either exit short positions or exit and go long.
What can you do?
Feed buyers could be aggressive at locking in longer-term needs before weather events occur. If you sell stored grains or soybeans and want to retain ownership, consider using paper products such as call options or futures. While no one likes to sell grain when prices are low, sometimes you must for logistical or cash flow reasons. Purchasing futures or call options can keep you an owner. If you sell cash grain or soybeans, do not wait for a dip to buy. Make it seamless by doing both at the same time. Strive for a balanced approach, which means you’re prepared for whichever way the market moves. Have conversations with your advisor so they may help guide you in a direction that is right for you.
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