TFM Perspective 8-20-21


Don’t Lose Sight of 2022

As August unfolds, it is likely your attention begins to focus on the impending harvest, deciding the potential of this year’s crop, and whether you should be making additional marketing moves. Current prices for corn, soybeans, wheat, and cotton offer significant opportunity versus the last seven years, when prices have generally been at or below the cost of production. The questions are endless. Is this the start of a larger bull market? Will supplies remain tight? What if demand weakens? These and other related questions all have merit and are likely on every producer’s mind.  However, despite trading discount to the nearby futures, the same questions likely apply to next year’s crop. Current prices have not been seen in the recent past this far in advance of actually growing and producing a crop.

The old saying is “high prices cure high prices.” As the price of a commodity increases, demand decreases. This is a basic economic principle that makes sense with all else being equal. One may question then, what is equal? Generally, it means demand. Yet input costs have impact as well, for both the buyer and producer. As you can see, it can get complicated quickly. Yet, from a big picture perspective, new crop corn futures above $5.00 on December futures and soybeans above $12.50 and wheat over $7.00, assuming normal production, offer revenue per acre that, in most years, does not occur. Bottom line – the economic incentive is for producers to plant more, both domestically and worldwide. Yes, inputs are on the rise. Will higher inputs curb production? Probably not. At least not the first year of production. Producers will likely take the leap that high output dollars will offset input costs, or bet that input costs may come down in value.

A potential worst-case scenario is declining commodity prices and rising input costs. Therefore, you should be closely monitoring the markets and consider making sales for new crop. A big fear is selling too soon. This was realized by many this past year. The only way that is a problem is if prices work higher. The mantra “sell early and sell often” has merit. Additionally, there are tools to cover sales with retained ownership on paper. Call options accomplish this. Inquire with an advisor how to implement this strategy. This has two benefits. You can potentially participate in a price rally, and it can provide confidence to sell more at a higher price, bringing your overall average sell price higher.

Marketing far in advance will have its risks and benefits. If you are a producer who is confident in your production capabilities more than one harvest out, then pay close attention to what the market for what 2022 is currently offering. Another saying, “hopefully my first sales are my worst sales,” may also have merit. You will likely have a spectrum of sales throughout the year. If your first sales are your worst sales, prices must have moved higher. This is currently a challenge for 2022 crops, as futures prices have stalled on the ever-approaching eve of harvest for 2021 crops.

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.


Bryan Doherty

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