Time to Pick Price Targets

What happened

According to the USDA weekly Crop Progress report released on Monday, Oct. 21, harvest is well beyond the midway mark, as dry weather has helped farmers advance at a rapid pace. As of Sunday, 65% of corn (five-year average is 52%) and 81% of soybeans (five-year average is 67%) in the top producing states were harvested. Farmers are focused on taking care of harvest and fall fieldwork. However, that same attention will quickly focus on what to do with a harvested crop now that it is in the bin. While it is easy to look back at what could have been done for marketing, the focus now should be on the future and managing your inventory.

Why this is important

Completing harvest is a major relief. It may be easy to think, “Now that it’s in the bin, we’ll worry about it later.” That behavior is understandable and, in some ways, it makes sense. But now is not the time to take your eye off the marketing that needs to happen. Setting reasonable price expectations and having orders in place so sales occur is a great step toward building a strong marketing strategy.

What are reasonable expectations? Historically, a 10% to 15% price recovery from what could be a harvest low is a starting point. Though there are no guarantees that history will repeat itself, let’s look at some examples:

• December corn bottomed out this year at $3.85. Using this price level as a reference point would suggest a sale at $4.23½. A 15% increase on December futures targets $4.42¾.
• For soybeans, based off of the January futures low of $9.73½, a 10% increase equates to a target just under $10.71 and 15% just under $11.20.

The 10% and 15% recoveries are based on what this author would suggest as reasonable expectations from a historical perspective. You might set targets that are in line with changes in your local markets. Having orders in place and allowing these to execute if reached is a great way to reward rallies and get started. The percentage of sales you are comfortable with is up to you. However, for many producers, making those initial sales after harvest makes sense and gets the marketing ball rolling. If triggered, you can reevaluate as you become more aggressive or passive with future sales.

What can you do?

Calculate your target points and place orders with your buyers. This is an important step. Too often we hear from farmers who had price levels in mind,but once the market reached the target, they did not pull the trigger, only to see the market fall apart after the opportunity. When this happens, it becomes both financially and mentally draining. 

You should also discuss with your buyer the type of tool to use. For example, is a forward contract more appropriate than a hedge-to-arrive? They should be able to guide you to the appropriate decision. Take time to plan now so that action can occur when the opportunity is there.

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.