Feed Buyers Take Advantage of a Spring Price Dip
What’s Happened…
A recent price decline in grains and soybean meal are providing end users with an opportunity to shift risk. Corn futures have dropped by over 50 cents in the old crop July contract, while the new crop December futures lost nearly 30 cents and is currently trading under $4.50. Good planting progress in the U.S., coupled with little to no near-term weather concerns in South America, have kept traders on the defensive. Trade uncertainty due to tariff talk may be adding price pressure. Yet, if you buy feed, don’t get complacent. The market is offering you an opportunity ahead of the most critical time of the year when traders can quickly shift gears. Weather for the upcoming growing season will be the biggest factor for price direction.
Why this is Important…
As a buyer of inputs, it makes good sense to shift risk when opportunities arise. You don’t want to be in a situation midsummer where you look back and wish you had acted. Forecasts for weather change continuously. Some longer-range outlooks suggest net drying could occur during the growing season in the western half of the Midwest, a region that is already lacking subsoil moisture. Only time will tell how weather developments affect the crop. With grain and protein prices considered a value (near or below the cost of production), securing inventory helps bring certainty to your bottom line.
If, however, you feel there is more downside weakness for feed prices, at a minimum consider purchasing call options. A call option gives the owner the right (not the obligation) to be long (own) futures. If you lack understanding how calls work, take time now to learn so you can fit them into a strategic plan to benefit your operation. One way to view a call option is to consider it an insurance policy against higher futures prices. As a business owner, knowing how and when you can shift risk is important.
What can you do about it?
Monitor the markets carefully. Be prepared to act. Better yet, develop a strategy that implements itself. What does this mean? It means that you have a strategy in place so that, if prices hit certain levels, action occurs. This could come in the form of buying at a lower level or even setting levels above the market. If triggered, it could suggest a turnaround in price and you are, therefore, a buyer. Remember, doing nothing is still a plan. Sometimes this can pay dividends while at other times, it can be the riskiest of all strategies.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
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.
Author
Bryan Doherty