TOP FARMER WEEKLY PERSPECTIVE 6/11/2021 BY BRYAN DOHERTY
Week to Week
It is that time of year where price direction for the markets is mostly related to crop conditions, which are indirectly related to weather. Weather is, by far, the most dominant factor affecting crop production. As weather goes, often so does price. The consequences of weather may be reflected in the weekly crop ratings issued by the USDA each Monday, reflective of conditions through Sunday. As summer unfolds, a trend from week to week begins to develop. Typically, the market will trade the inverse of the trend. That is, if crop ratings are on the increase, prices tend to trend lower and vice versa. The progress report gives us some perspective as to whether the crop is on schedule, behind, or ahead.
The ratings categories are Very Poor, Poor, Fair, Good, and Excellent. The market tends to focus attention on the Good and Excellent categories. If crops are not in good shape, then focus will also include Poor and Very Poor. On occasion, the Fair category is viewed as important when there is a high percentage in this category. If so, then as the season wears on, ratings usually will shift out of the Fair category as the crop improves or declines. This week’s crop ratings indicate that 72% is Good or Excellent for corn, down 4% from the previous week. Last year, for the same week, 75% was rated as Good or Excellent. The Poor and Very Poor categories combined was 5%, an increase of 1% from the previous week and 1% higher than a year ago. On the surface, quick analysis suggests the crop is declining from last week to this week, yet, in mostly good shape. The futures market may have anticipated this week’s drop, gaining 46 cents on the December contract last week. Last week’s ratings for soybeans were the first of the season, indicating 67% Good to Excellent, which down from 72% the previous year.
The function of the futures market is to anticipate what the future price of a commodity will be at the time the contract ends. As an example, the December corn contract is used to determine the price of corn that is currently being produced for fall delivery, not the price of corn being bought or sold for nearby delivery. The weekly ratings provide the insight for traders to help them make a more educated determination as to how they may want to buy or sell. The Crop Progress report, also released at the same time, will provide insight as well, though it is considered less important unless the crop is well ahead or behind normal. The progress of the crop can also help traders see how forecasted weather might affect the different stages of crop development.
There are many variables that can affect prices during the year. As summer unfolds, the trend of crop ratings as well as progress provides a good gauge of fundamental factors that may determine the size of the upcoming harvest. From a marketing perspective, if the crop is trending in one direction, it may help to finalize decision-making as to which strategy to utilize. As an example, if the trend of the crop ratings is declining and price is moving upward, this might suggest you hold off making sales, follow the market with trigger points (stops), or purchase puts. If crop ratings are improving week to week, this might suggest you step up sales sooner than later, or implement hedges.
As with any strategy, speak to a trusted advisor. Learn the risks and rewards of any position before entering.
If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-334-9779, extension 300.
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.