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Weather feeds volatility

By Cathy Ekstrand

Just like water ebbs and flows, so do the markets, back and
forth. How different the planting season has been this year compared with last
year.

In 2012, we had a record planting pace and crop development,
only to be stifled and set back by a drought of biblical proportions. In 2013,
it seems to rain nearly every day, causing continued delays in planting and
concerns over whether some crops will get planted at all.

I sometimes wonder what it would be like to be those people
whose livelihood does not depend on weather, who watch the weather reports each
day only to determine what to wear. They go about their jobs and their business,
and whether it rains or not has little impact on their daily lives. Those of us
in agriculture don’t have that luxury. We have no control over the weather and
are certainly impacted by it.

It’s not enough that the weather affects our crop production
efforts; it complicates our marketing efforts, too.

In an article this winter, I talked about how market
advisers seemed to be talking out of both sides of their mouth (It’s
not doublespeak: It’s reality
). Advisers are bearish on the one hand,
should the acres get planted and favorable weather occur causing inventory levels
to catapult. And they are bullish on the other hand, should a drought occur
leaving stocks tight and causing prices to soar.

Needless to say, we are still in that boat. (No pun intended
for those of us with too much water.) The next four to six weeks will be crucial to
your marketing efforts.

From mid-June to mid-July, weather becomes more critical than
any other time. It will make or break the crop. A few years back (2009) we had
another slow, wet planting spring. That year, summer weather cooperated and we
ended up with a bumper, record-breaking crop. So preparing for uncertainty is
what producers must do every day, both in their production efforts and
marketing efforts as well. 

It’s understandable that you may be cautious forward pricing a
lot of cash grain, especially since you’ll want to get it planted first. You
might consider holding fixed risk hedge strategies through the next few months,
which would allow you to establish a price floor and keep the upside open for
pricing opportunities.

Keep in mind that in a weather market, prices will be
volatile and the trend can change rapidly. It’s the market’s job to set prices
based on supply and demand. Most years, the crops eventually get planted and, lo and behold, the yield is there come fall. When that happens, it’s hard to
increase demand as prices rally. We may lose some yield and acres, but at some
point higher prices choke demand as well – and so prices will yo-yo.

The market is a constant balancing act. As marketers, you
have a balancing challenge of your own: to balance your emotion with
disciplined marketing decisions. That is best done when you plan ahead for
possibilities rather than make decisions in an emotional state. Planning ahead
will be the key to your marketing efforts. Know what you will do should the
market go up a little or a lot and vice versa. You have to be disciplined to
price when provided the opportunity.

If you have questions, you can reach Cathy at cekstrand@stewart-peterson.com,
or post a marketing question on the Women in Ag forum.

           

Market Scenario Planning(sm) is a
service of Stewart-Peterson Inc.

The data contained herein is believed to be drawn from
reliable sources but cannot be guaranteed. This material has been prepared by a
sales or trading employee or agent of Stewart-Peterson and is, or is in the
nature of, promoting the use of marketing tools, including futures and options.
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
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be carefully considered before investing.  Past performance may not be
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