How Can Farmers Prepare for the Market’s Next Big Move in Soybeans?

What Happened

Bullish and bearish traders have arguments as to where soybean prices may be headed. The bulls argue that an eventual adjustment downward to this year’s crop yield, along with a strong crush pace and eventual trade deal with China, will help bolster prices. As winter approaches, potential for less-than-ideal weather in South America could also be a factor. Talk of possible government cash payments to farmers for trade disruptions could reduce the need for farmers to make sales in the near term. Bearish traders argue there is a big crop at a time when the window for a deal with China is closing. And more acres, as well as a chance for good South American weather, could add further price pressure.

Why This Is Important

Soybean prices can and may move in a quick, large, and potentially violent fashion. The longer prices remain in a sideways pattern, the more likely it is that a big price move happens when the trend is violated. For farmers, preparation for volatility may be the difference between great marketing and poor marketing. Selling on a price rally is important, yet if prices continue to move higher, this could prove somewhat ineffective. On the other hand, storing and hoping isn’t a very risk-averse strategy. The bottom line is: Implementing a balanced marketing approach that prepares you for any market move is critical for great marketing. Whether you’re a bull or bear on soybean prices, preparing and executing a strategy is the cornerstone to good risk management.

What Can You Do?

Consider strategies that defend against lower prices yet maintain a position/ownership that allows you to participate in a price rally. One basic strategy is to sell cash and retain ownership with fixed-risk call options. In this scenario, you have eliminated downside price risk and retained ownership with a clear picture of potential outcomes. If you prefer to store your soybeans, purchase put options to establish a price floor while maintaining ownership of physical soybeans. The key is balance. If you implement either strategy, you are left managing a strategy and not letting the market manage you.

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.