A Developing Yield Theme

What’s happened…

Through most of the growing season, historically low crop ratings and a drought monitor map that looked scary pointed toward disappointing yields or even crop failures for the Midwest. Yet, both corn and soybean yield, while not record, are seemingly headed toward the very upper end of their historical ranges. A theme that has developed during the harvest season is that the crop is yielding better than expected, though for many, still below last year. There are some who will have their best yields ever, and some who will have their worst yields ever, due to lack of rain. It appears that most have escaped a large drawdown in production, bringing a sigh of relief to many.

Why this is important…

What was learned this growing season? Maybe a lot and maybe not much. One theory is that improved genetics, tillage practices, equipment, along with focused farmers helped crops to sustain adverse weather. No doubt, there is support for this argument. However, the importance of timely rains has proven a critical factor. In the end, both better practices and timely rain helped to save this year’s crop.  “We don’t know where it came from” is a common phrase heard as harvest picks up steam. With hindsight, timely rains were critical. Also helpful were cool evening temperatures during late June and early July, even though weather was warm and dry during the day. The crop didn’t “cook “as much as many feared. Ultimately, however, crop concerns kept many from making marketing decisions, often the downside to weather markets.

Some recent talk suggests that drought conditions may have little impact in future years due to genetic improvements. Don’t buy into that argument. Give credit to great science and farming practices, yet Mother Nature will still have the final word. Another week or two without moisture and this year’s crop could look much different. As the world production of row crops expands and demand grows, it will take consistently good weather to produce crops necessary to meet end users’ needs.

Trying to out-guess market action can be dangerous. Prices for both corn and soybeans zoomed higher at the end of June, only to quickly collapse. A late summer rally quickly fizzled as well. Both rallies offered good pricing opportunities. The long-term trend continues to remain down since May 2022. History shows that in the last three corn rallies when futures reached over $8, major long-term price tops formed, creating less demand and production. It may take prices 18 to 24 months to find a low.

What can you do?

The takeaway from a marketing perspective is to have an approach that is balanced. Recognize that in most years, traders have confidence in crop production. Producers can be (and often are) emotionally attached to their crop and are slow to respond when prices start heading downward, a totally understandable behavior. The key is to sell into price strength to capture market value. Forward selling a comfortable amount into a weather rally and buying puts to defend unpriced crops are strategies to consider. Visit with a professional and learn the risks and rewards of any strategy before entering.

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