What’s a producer to do with inventory?
By Cathy Eckstrand
Weather concerns and emotions were high all season which kept many producers on the sidelines when it came to forward selling at higher price levels.
Last year the drought, followed by a wet spring, along with slow crop maturity, and lack of August rains and early frost concerns all added to marketing anxiety. So far, early yields are telling us we have nothing to fear.
Dryness helped advance the crop maturity and early moisture seems to have boosted yield potential.
Later yields may tell a different story, however for now, it’s shaping up that in spite of weather concerns in some areas, the majority of crop supply looks to be adequate. In addition, the recent quarterly grains stocks report proved to be bearish on corn and beans. The USDA raised stocks for both crops above expectations which forced a price drop into new lows for corn and below $13 for beans at the end of September.
So, what is a producer who has plenty of inventory and few sales on the books to do?
Market Scenario Planning (sm) allows producers flexibility in uncertain times. It helps you plan what you need to do if the market should rally a lot, a little, or not at all. The same holds true should the market drop a lot, a little, or none at all. Planning ahead and using paper marketing tools to back up your cash plan can give you peace of mind in weather uncertainty.
Producers can still benefit from holding fixed risk put options going into the thick of harvest. Since corn closed into new lows, there could be additional downside risk. Potential also exists for forward contracting off the March contract which is nearly 13 cents over the December.
It would seem for now many producers will store corn into winter which may allow for basis improvement. Capturing 10 or 15 cents on a better basis this winter could help improve your sales price as well. It looks like producers will need to be patient – as well as deliberate – in trying to capture what price levels they can. Remember, there is still premium in the market compared to price levels of a few years ago.
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 by or attributed to Stewart-Peterson. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk.