Timely Rains, Cooler Temperatures
What’s happened…
“Yields are better than we thought” is a common theme heard from many farmers recently. With some hindsight, it is somewhat easy to explain why this is the case. At points during the season, a lack of rain and high temperatures were big concerns, leaving many with a best guess of potentially lower yields. Harvest results for many were not to expectations from early spring, and for many, better than anticipated. The 2023 growing season was a year of below normal rainfall and higher temperatures for most of the Midwest. Still, periods of cooler temperatures and timely precipitation allowed the crop to hold on and perform better than anticipated. As it turns out, July 2023 rainfall was greater than 2012 and temperatures were lower.
Corn and soybean futures rallied in June, reflecting the growing concern of continuous hot and dry days. Prices peaked in late June and early July. Extended forecasts changed to below normal temperatures, which quickly had managed money reversing from long to short positions. As timely rains accumulated throughout July, futures continued to drop. The most recent USDA projected yield for corn is 173 bushels an acre, well below the 181.5 forecast in May. Soybean projected yield is now 49.6 bushels as compared to 52, also forecast in May. Timely rains, soil profile, and genetics all helped produce better-than-anticipated crops. It is also fair to say that not all farmers fared well. Between lower yield and lower prices, 2023 will be a challenging year.
Why this is important…
Many are wondering why they didn’t sell more, especially at the end of June when December corn peaked near $6.30 a bushel and November soybeans near $13.50. The obvious answer is that there was just too much uncertainty. Futures were coming off much higher prices than the previous year, and basis levels reflected tight supplies. The futures market also had a significant inversion between 2022 and 2023 prices. When a market is inverted, the tendency is to sell the previously harvested crop that is in storage (supply on hand), and save the new crop for a move higher.
What can you do?
If you are not as far along on sales as you would like to be, what might you have done differently? Purchasing put options was a viable alternative. The owner (buyer) of a put has the right (not obligation) to sell futures. Therefore, put options establish a price floor and leave the topside open for price appreciation. Contracting ahead was an option, though the uncertainty of one’s production can pose a risk. Will a small sale end up being a big sale if your crop is diminished? You might need to buy bushels at a higher price to fulfill your contract. There are many tools to use that will help you mitigate risk and provide opportunities. Looking forward, schedule time with a professional to prepare yourself to market moves. Learn about the tools in your marketing toolbox to help you make sound marketing decisions.
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