Firming Dollar and Low Water Levels Keeping Prices in Check
What’s happened…
Despite continuing dry weather in the Midwest coupled with recent temperatures which have soared into the upper 90s or 100-degree levels, corn futures prices have, at best, consolidated. Soybeans, while they have recently rallied, trended lower at the end of last week despite what appears to be a crop that could be losing yield. The Ukraine/Russia war continues to escalate, yet the market has been dismissive. These fundamental factors, which could be viewed as friendly, are currently not forces driving prices higher. Countering potential yield losses and the war are low water levels in major riverways and a rising U.S. dollar. The Mississippi is now forecast to experience its lowest water level in more than a year, when grain movement nearly ground to a halt due to dry conditions last fall. A rallying U.S. dollar is not helping exports either, as the greenback has reached its highest level since March. Yet, another headwind for corn has been a record crop out of Brazil, which has generally been priced lower than U.S. values.
Adding to the current market woes is a Northern Hemisphere harvest that is just getting underway. End users (domestic and international) are buying only as needed. Soybean exports have picked up, yet corn and wheat remain tepid. Historically, there is a tendency for corn and soybean prices to search for a “harvest low” in the August and September time window. The implication among slow exports, a rising dollar, and an impending harvest is that basis (cash price less futures price) will widen (get worse) for farmers who need to sell out of the field.
Why this is important…
Although it looks bleak for a price recovery soon, remember the markets are always dynamic. Corn, wheat, and beans are currently priced much lower than a year ago. High prices put end users in a bind with many buying just what they need at the time, and not buying well in advance, as could happen now.
What can you do?
If you’re a seller, have conversations with buyers. Shop for basis and consider locking it in if you are concerned it will get worse. If a lower basis and price are expected, consider forward selling as an alternative. Due to a carry in the market, if you plan to store for some time, a hedge-to-arrive contract will lock the futures price (not basis). Hedge-to-arrive contracts are generally used when expecting basis improvement.
Buyers may view current prices as an opportunity to purchase at or below the cost of production. To that end, if you do sell, converse with your advisor on ways to stay long the market through paper products like call options or bull call spreads to create a balanced approach. You are then ready for the market to move in any direction. Make sure you understand the risks and opportunities before entering into any position. For now, the market might focus on negatives like low water levels and a rising dollar. Views can and do change quickly, and so do the markets. Be ready!
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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.
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Bryan Doherty