Market Analyst Explains January Surprise From USDA, How You Can Prepare for Next Month

What Happened

By definition, a surprise is when something unexpected occurs. In the case of the January World Agricultural Supply and Demand Estimates (WASDE) report, reductions in corn and soybean yields were a bit surprising, sending prices sharply higher.  

Prior to a WASDE report’s release, there is a pre-report range of estimates and an average of the estimates. When the actual figures released are outside the range of estimates, the potential impact to price changes can be pronounced. In the case of corn yield, the average pre-report estimate for January was 182.6 bushels per acre. The range of estimates was 181.3 to 183.7. The actual figure published by the USDA was 179.3. For soybeans, the range of estimates was 51.2 to 51.7 bushels per acre with the average at 51.6. The actual value was 50.7, again below the average trade guess and outside the range. Both markets rallied, finishing the session with strong gains.

Why This Is Important

A perspective of how fundamental changes affect prices can provide time to shift risk or manage opportunity. When a report is released, the report will be viewed as bullish, bearish, or neutral. The market will react in a bullish, bearish, or neutral manner. Any combination can happen. For example, a bullish report can be met with a negative sentiment. In that case, the friendly news may be considered old news. Or the market may get a report viewed negatively, yet prices trend higher. In this scenario, the marketplace (which is all the participants voting through their trades) may be factoring in events or circumstances beyond the report. 

In the case of corn and soybeans, the January numbers were friendly and the market reacted in a friendly way. The opportunity to sell old crop inventory at higher prices was at hand. Preparing for this kind of rally beforehand may be vital to meeting your selling goals. Sometimes, the market moves sharply for a day or two and then runs out of gas. Having orders in place to sell at higher levels provides a chance to sell, helping to meet your goal for those bushels. If you don’t have orders working, you may miss a selling opportunity.

What Can You Do?

Prepare for market movements before and after reports. Be ready for a potential change in fundamentals (supply and demand numbers) and the impact they may have on prices. Corn ending stocks have been on the decline for several consecutive months. Ultimately, this suggests that a good crop will be needed in the year ahead to maintain the current inventory level. Adverse weather will have a much quicker impact. Knowing this, it may be prudent to have a strategy in place to retain ownership for 2024 sales and purchase call options to cover 2025 sales.  

Have regular communication with your advisor so that you can pre-plan for market movements and execute when the opportunity presents itself. Pre-planning also helps to reduce the emotion of decision-making. No sale or purchase is ever completely unattached from emotion, however, when a well thought-out plan is executed, the level of emotion may likely be lessened.

Find 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 rather than emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: 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 the 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.

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.