How to Manage Feed Costs When Grain Markets Heat Up

What Happened

In August, the USDA released the monthly World Agricultural Supply and Demand Estimates (WASDE) report. Eye-popping yield expectations in corn and soybeans with projections for record crops provided the potential for prices to collapse. The report also indicated significant demand increases. In the end, the trade took the report as a buy opportunity, anticipating that the biggest yield numbers were likely already factored into prices. The expectation that U.S. farmers would reach nearly 190 bushels an acre in corn and close to 54 bushels an acre in soybeans may have been too robust. Since the report, corn prices have rallied more than 10% and soybean futures have gained over 13%, despite harvest pressure, a government shutdown, and lack of a trade deal with China (until recently).

Why This Is Important

The feed market could either be nearing its correction from a downward price trend (established from early 2025), or is in the beginning stages of a potential bull market that has been absent for several years. From a big picture perspective, feed prices have been cheap.  Considering inflation and the cost of production, most corn and soybean farmers have struggled to pencil anything but losses. At some point, the idea of record crop after record crop — and the assumption farmers both domestically and worldwide will be able to finance higher input cost — will come into question. Additionally, expecting weather conditions worldwide to remain favorable could be a very costly mistake. If production shortfalls are perceived, end user and speculative interest could quickly erupt at a time when farmer selling slows.

What Can You Do?

Establish a comprehensive feed-buying program. What this boils down to is managing the risk of grain and oilseeds that historically are considered inexpensive. World demand seems to be responding to low prices, with strong export activity noted so far this fall. Assuming normal to above-normal crop production in the year ahead is not a good strategy. Discuss forward contracting or using call options or hedges through long futures with those who can help you implement. Preparation and anticipation are powerful attributes of good risk management.

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.