Bearish Winds

What’s Happened…

A negative USDA Supply and Demand report in January sent corn prices to their lowest level in multiple months. Prices found a low shortly after the report and then began a longer-term uptrend that lasted from mid-January through mid-May. After peaking, prices moved lower, not only taking back gains since January; they also moved into new contract low prices in late June. The uncertainty that provided rationale for both end users and speculators to buy has since evaporated. Bullish winds have turned negative. 

Large speculators (managed money) went from long nearly 400,000 contracts to a net short position by the second week of June. Planting progress started on a strong note and remained as such throughout the planting season, taking away uncertainty that sometimes can occur during the spring season. Dry conditions in the Central Midwest received much needed moisture, helping crops to get off to a good growing season. “Rain makes grain” is the view from the marketplace.  

A rally in the U.S. dollar (6% gain since January) coupled with technical selling led to additional long futures liquidation and the establishment of new trend-following short positions. Crude oil is trading near $70 per barrel, well off the high of just under $120.00 in March.

Why this is Important…

Recent price activity is a reminder that bullish factors can turn bearish, and quickly. Preparing for change is critical. Scenario planning looks at a price and then asks four simple questions: What happens if prices rally a little? What happens if prices rally a lot? What if prices drop a little? What happens if prices drop a lot? These questions set the tone for a critical and needed view to formulate strategy ahead of an actual price move, much like a well-coached and prepared football team knows how to respond to an opponent’s game plan.  

The corn market may have seen its high price for the year. For the moment, bearish winds continue to push prices lower. However, end users should not rest easy. It is too early in the growing season. Weather developments could adversely affect production over the next 45 days. Markets tend to move on perception, which can change practically overnight. Now is the time to strategize if you are a buyer. Ask the same scenario planning questions and put together a plan to execute if the market indicates you should do so.

What can you do about it?

ABR – Always Be Ready. Marketing may be the most important variable separating good farmers from great farmers. Corn producers are outstanding at what they do best, producing great crops. Yet, financial challenges are in front of many. Paying close attention to price rallies and signals that a change in trend may be at hand should be part of a well-planned balanced marketing approach. Conversations with important members of your success circle include people like your family, lender, insurance agent, buyer, and market advisor. These conversations should be scheduled consistently with an intentional agenda. Your profession is farming. Your marketing should be treated professionally as well.

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 over 36 years at Total Farm Marketing and 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 markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their 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