Prepare for How Weather May Impact Prices This Planting Season

What Happened

As confirmed by recent USDA crop progress reports (released on Monday afternoons), spring fieldwork is progressing about as anticipated, and in comparison with historical norms. The markets have reflected this in corn and wheat, as both have seen declines in futures prices for new crops. Typically, as planting uncertainty begins to decrease, so do prices. In the case of wheat, recent rain for the Wheat Belt, where hard red winter wheat is growing, suggests crop stabilization or improvement as the harvest season nears.

Why This Is Important

Farmers must prepare for market moves when making marketing decisions. Some call this “rehearsing the future,” while others call it “scenario planning.” Whatever you call it, it is the process of making conscious decisions on how you might implement marketing strategies. It is not unusual for the corn and soybean markets to reflect a weather premium in prices during late winter and early spring. There are many uncertainties for the upcoming crop season. As these unknowns become more certain, this is typically reflected in lower prices. If uncertainty increases, as could be the case with extremely wet or dry conditions, price volatility tends to increase — and so do prices. 

Forecasting weather from a long-term perspective might be considered a challenge, even for the most sophisticated methodologies. Forecasts for closer time periods, such as a 6–10-day outlook, generally have a higher level of reliability. As May unfolds, if the forecast suggests good weather for planting and early growth, a defensive strategy (anticipating lower prices) may be warranted. 

What Can You Do?

Though it may be your busiest time of year, take a few minutes to monitor the weather forecasts and their potential impact on prices. Decide if you should act. Depending on which marketing tools you like to use, you may decide to forward sell, sell futures, or purchase put options if the weather looks good for planting and early growth. If you are a buyer of feed or protein products, the same holds true. Expect to use tools to purchase, such as forward contacts, buying futures, or purchasing call options. Use the right tool for the right occasion, depending on your risk tolerance and goals.

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.