Weather Markets Are Here

What Happened

When winter fades to spring, attention for row crops starts focusing more on weather developments and its impact on planting and the early growing season.. For many, this has been a challenging spring due to less-than-ideal conditions. Yet, planting progress is ahead of schedule for soybeans and on track for corn, according to the most recent USDA Crop Progress report. The report indicated 97% of the corn crop in the top 18 producing states is planted, the same as the five-year average for that point in the year. Soybean planting was ahead of schedule in the top producing states at 90% complete versus the five-year average of 88%. While spring has its challenges, the weather that matters most for crop production is yet to occur.

Why This Is Important

As weather developments in June–August unfold, they can majorly impact expected crop production. As an example, in 2012, the December corn futures price bottomed in mid-June before rallying more than $3, reaching a peak on Aug. 10, as drought conditions reduced crops. The point is, the weather will have its greatest impact on crop production in the months ahead. As the weather goes, so likely will price. End users and producers should prepare in advance for weather developments and, consequently, the potential for various price changes. 

One of three events typically occurs: 

1. The weather is adequate, creating expected crops. 
2. The weather is less than adequate, leading to smaller supplies and a price rally. 
3. The weather is outstanding, creating larger-than-expected crops and much lower prices by harvest.

What Can You Do?

Prepare yourself for future price movement now, when volatility is low. The December corn futures contract has traded at $4.40 in 11 of the last 12 months. While this could continue, it is more likely that weather will be responsible for prices moving in either direction, breaking overhead resistance, or dropping to new contract lows by the fall harvest. Take a balanced approach.. This means proactively planning for prices to move in either direction. An example is forward selling half of the expected production, and purchasing put options to protect the other half from downside price risk. Purchase call options on bushels forward sold so you can participate should prices rally. The key is preparation by planning ahead.  

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.