A new opportunity for feed buyers

What happened

Corn and soybean prices have plunged over the last two weeks, providing an opportunity for end users to more aggressively seek longer-term needs. In both the corn and soybean markets, prices recently rallied on a lack of farmer selling, dry weather in Brazil, short covering by funds, and the thought that a contract low may be in place. Since then, rain has materialized in Brazil, energy prices have weakened, fund selling has returned, and harvest pressure has advanced — all of which are now providing buyers a second opportunity.

Why this is important

End users (feed buyers, ethanol producers, or otherwise) have an opportunity to lock in longer-term needs at low prices. We will define low prices as prices in the vicinity of the contract low for the season. With good harvest weather expected, corn farmers will be well past the 50% harvested mark in short order, and heavy farmer selling is not likely now that prices have weakened. End user buying, however, could become aggressive, suggesting the recent drop in prices may be short-lived.

The recent sell-off could be a function of technical selling, which means traders have been exiting long positions or entering shorts positions based on price charts. Often these sell-offs can be short-lived, especially if prices hold near recent lows, forming a double bottom on charts. A double bottom can attract buyers.

What can you do?

If you are a buyer and feel as though you missed the opportunity to secure needs several weeks ago, now may be your time to strike. As a buyer, we recommend approaching the market with the mindset there is limited downside for corn, soybeans, meal, and soy oil prices. Begin inquiring or locking in long-term needs with your supplier or hedge with futures or call options. From a historical perspective, prices are low enough that to do nothing is a risk.

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.