Grain Markets Plunge — How Should You Respond?

What Happened

Corn, soybean, and wheat futures plunged this past week, reflecting continued good weather for growing conditions and harvest pressure for wheat. Soybean and wheat futures rallied into Friday, June 20, yet also managed to reverse and finish lower that same day. This technical activity likely encouraged those who bought at lower prices to exit. It is also likely that sell stops were triggered as prices descended, adding additional selling pressure. Corn futures declined despite losing 2 percentage points in the good/excellent category in the June 23 Crop Progress report. The overriding factors are: expected improvement in crop conditions due to recent weather forecasts, market talk of additional corn production from Brazil’s second corn crop, and managed money adding to short positions.

Why This Is Important

As the reality of bigger crop potential plays out, prices often move lower, in part for the reasons listed above and in part due to a mindset change by those who use grains and oilseeds. End users are feeling more confident that a big crop is likely, which implies their approach to buying is changing. With lower prices, they may feel less urgency in purchasing. Despite the best prices of the year for feed users to secure inventory, their actions are likely to take a “buy only as needed” mentality until something occurs to change this way of thinking. Producers, on the other hand, are likely feeling good about crop prospects, but not pricing opportunities.

In any case, now is not the time for buyers or producers to make broad assumptions that the crop is made. There is much growing season ahead and crop conditions can change. Weather in July and August will be critical to mature crops. The U.S. dollar is trading at a multi-year low level. Marketing strategies are as important as ever; however, they may need some adjustment.

What Can You Do?

If you don’t want to contract supplies when buying feed, consider purchasing call options to establish a price ceiling. Use December corn and soymeal calls to purchase enough time to allow for a full look at the remainder of the season. To protect downside price potential, consider purchasing puts in corn, soybeans, and wheat. Use December for corn, November for soybeans, and December for wheat. Purchasing a put option still allows for unpriced cash sales to increase in value. Until there is a better sign, prices may not be done going down, and it is important to defend against the current price trend.

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.