TFM Perspective 10-23-20


Stay Alert

The last several weeks have been more than just a little interesting in the grain markets. Corn prices have rallied near $0.90, despite current forecasts for this year’s crop to be the second largest on record. With over 50% of the crop harvested, basis remains strong and yield numbers high. This may very well be the second largest crop on record. Soybean prices have been even more impressive, rallying from the mid $8.00 to over $10.50. Wheat, despite world record projected carryout, has climbed over $1.50 as well, and continues to look as though it may move higher.

The emotion of bull markets is often more stressful than bear markets. Why is that? It’s probably a simple analysis of emotion. When you decide to sell in a bull market, you’re likely feeling regretful if prices continue to move higher or lower. Either you should not have sold, or you didn’t sell enough. Compare this to a bear market: Perhaps you make some sales, and as prices drop, you feel in good company because it’s likely that most farmers didn’t make additional sales either. Every producer knows there’s a year lurking where prices begin to move higher and, rather than make a moderate price rally, accelerate higher. Is 2020 a year of acceleration? It might be, as prices continue to climb despite good crops. The focus is on demand and weather. China continues to be a strong buyer. With the trade deal in place, China has indicated it will make good on its agreement to purchase huge quantities of ag products. The script may have not been written any better. China indicated they would buy beans when needed and at the right price. Price is always relative to supply availability, so it’s a vague notion. However, the need is there. Internally, China is experiencing high prices for their own commodities, while at the same time, rebuilding its livestock and poultry herds after a massive bout with African swine fever.

Weather has become an important factor, as the western half of the United States remains on high alert because of drought conditions. Dry weather has created a scenario where planting conditions in South America are well behind schedule. This implies more potential demand for US products, as both the soybean and corn crops will not deliver product to the world in a timely fashion. Russia continues to struggle with extreme dry conditions as well. As the leading exporter of wheat to the world, attention is focused on future supply availability. Weather can create demand. If end users believe a shortfall of supply could occur, pre-emptive buying increases dramatically. Possibly, that’s what is currently happening worldwide.

Don’t fall asleep at the switch. Last year, corn prices peaked in October and never looked back until bottoming this August. Demand can be fleeting and more perceptive in nature. If weather conditions improve in South America or elsewhere, prices may be on the decline. This is a scenario that must be taken seriously because of the amount of investment money that has purchased commodities. Should money leave the marketplace, there could be a hollow swooshing sound as prices collapse.

The key, however, is a balanced approach. If you have bills to pay and a family to care for, you can’t afford not to sell into a rally. Your risk is too high. Reward rallies and keep your pay raise. Consider reinvesting a portion of the rally dollars by retaining ownership by purchasing call options. If, in fact, the dry weather patterns and money flow continue to lead to a major bull market, prices could be just beginning to make a bigger move. If not balanced, it is almost certain you will struggle with the emotion of regrettable decisions. Pay attention to the news, and more importantly, implement strategy. Have conversations with your advisor on how to implement a balanced approach of selling and re-owning in a responsible manner.

If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 444.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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