Good Growing Weather Pressuring Prices

What Happened

Since the third week of May, weather conditions for most farmers in the Midwest have taken a turn for the better. Those struggling with hot and dry conditions or those who received too much rain experienced positive changes. The western Midwest received much-needed rain and lower temperatures, while the eastern and southern Midwest dried out. Farmers made rapid progress, with corn plantings at 97% complete as of June 8 in the top 18 growing states, the same as the five-year average. Early ratings for corn conditions were 71% good-to-excellent, 2 percentage points better than the previous week. Soybean planting at 90% was above the five-year average of 88%. Sixty-eight percent of soybeans were rated good-to-excellent, down from 72% a year ago. However, it is thought this is mainly due to cooler temperatures limiting growth.

Why This Is Important

With any commodity, there are generally two key players: those who produce the product and those who consume it. From the perspective of those who use corn, soybeans, or wheat, there is much growing season beyond the next few weeks. Therefore, it is incumbent upon the end users to keep a close eye on future weather developments. The old saying, “The crop is not in the bin until it’s harvested,” has merit. Near-term weather developments and recent forecasts have pressured prices. This provides opportunities for end users to secure inventory at a price level that is near the low for the year, despite critical crop growing and maturing weather the next 45–90 days. Adverse weather could quickly change the direction of price from down to up.

From the perspective of the producer, some of the early hurdles for crop production — planting in a timely fashion and early growth — are already behind the market. These are measured by the weekly USDA Crop Progress report. A good start also implies that continued favorable weather will keep end users less than aggressive in buying, as they will likely buy only as-needed. This practice is known as just-in-time inventories. If weather continues to look favorable for crop development, speculators will remain on the sell side. The weekly Commitment of Traders report details who the major players are in the market and how they are positioned. Row crop producers should be aware that in the weeks ahead, it may get more difficult for weather disruptions to affect this year’s crops. In this case, a more aggressive marketing approach is warranted. 

What Can You Do?

End users should consider purchasing longer-term feed needs through cash contracts, futures, or options positions. If you don’t want to lock in contracts, purchasing call options to establish a price ceiling is a good alternative with a fixed-risk component. On the other hand, grain farmers should consider forward contracting to secure prices. Purchasing call options to cover forward contracts can help capture value, should prices rise. Purchasing put options is a strategy to establish a price floor, yet keeps the topside open for a futures price rally. Hedging (selling futures) may be an alternative for downside price protection. Selling futures to establish a futures price floor can also offer flexibility. Exiting a position can be as simple as making a phone call.

Find What Works for You

Work with a professional to find the strategy or strategies 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.