The CME and Total Farm Marketing offices will be closed Monday, January 2, in observance of New Year’s Day.
From all of us at Total Farm Marketing, have a prosperous and happy new year!
TOP FARMER WEEKLY PERSPECTIVE 12/30/2022 BY BRYAN DOHERTY
Strive for Balance
If you have watched any of the marketing shows lately, you’ve seen no shortage of views on where the agriculture markets may be headed in 2023. Will more “normal” type weather return and world production ramp up significantly, or will there be continued weather as well as other events to disrupt supply? Only time will tell. Compare the last three years to the previous seven, and it looks like the world is turned upside down. Can production improve that quickly? Will high prices cure high prices? What will China’s economy look like six months from now, and will the war in Ukraine have ended? The questions and scenarios are endless.
The old saying “control what you can control” comes to mind. You can’t control weather and you can’t control what other governments do. You can manage risk and opportunities. As we head toward 2023, strive to be prepared for whatever the markets may do. Let’s think back to events in just the last few years: a worldwide pandemic; energy prices that went negative then skyrocketed; droughts in South America, the U.S., and elsewhere; a near-collapse in the China economy; a major war (with no apparent end in sight); massive world-wide supply disruptions. We can control none of these. Yet, preparation for what may be next (either expected or unexpected) could mean the difference between a successful year and a challenging year. Just as you prepare for growing crops, so too should be the case with marketing.
Now is the time to plan. Take time when it’s cold outside to ready yourself for the upcoming year. Think of different scenarios that could move prices, and then strategize. Markets move fast and can be unforgiving. The emotional roller coaster is something many try to avoid. If you implement the “do nothing” approach, it could lead to an extreme result.
A simple yet powerful strategy is to forward sell a comfortable level of production. Then, consider purchasing puts to cover expected production you do not intend to forward sell. This approach will defend against lower prices on all your expected production. Implementation could be spread out (usually over the winter months) or at a price level or levels that sales and put purchases are implemented. The goal is to shift risk before market volatility usually kicks in (summer). In June of 2022, corn prices started to slide quickly, with December futures losing near $1.85 in several weeks. Trying to catch falling prices and make unemotional sales during a time like the summer of 2022 is likely difficult. Now, to cover the forward sold bushels, purchase call options to re-own. If tight supplies get even tighter in the year ahead, rationing may need to occur. That means prices could skyrocket. There are many choices of puts and calls to consider, so consult with your advisor.
Take the time to learn more about the risks and rewards of this strategy before entering into any positions. Spending time now to prepare for the future is putting yourself in a position to manage the market volatility that lies ahead rather than the markets managing you.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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.
Author
Bryan Doherty