Aggressive or conservative marketer, you decide
With no carry in the market, basis firming dramatically, higher volatility and prices unseasonably high, the way producers make sales and how they protect them and when they make them have to be different to maximize marketing results, analysts said.
One way producers can decide on selling is determining what kind of marketer they are, aggressive or conservative.
In a daily newsletter to customers, Shawn Hackett, Roach Ag Marketing, Ltd, said just because the corn market is trying to find out what price level is high enough to meet demand, and it looks like it could go higher to find that level, it never fails that the level will be found.
Because of that, producers need to market their crop differently than they have been accustomed to in the past few years, Hackett said.
"I know everyone today is saying that there is no way we can make this supply demand equation work for corn," Hackett said. "Believe me, the market will find a way. It always does. Remember, no one saw this rally coming in terms of its magnitude and timing. Everyone will also be surprised when the downside does come in terms of magnitude and timing."
So, when producers look at their marketing plan, defining downside and upside risk parameters is important, Hackett said. Also, producers should choose to be a protector of inventory or a defender of sales or both.
"Whichever path you want to take, make sure you do not get caught taking no action at all. No action at all in a market like this is probably the worst action you could possibly take," Hackett wrote.
Rich Balvanz, Ag Management Services, LLC, said conservative marketers should be making sells into this corn market, especially if they have commercial storage.
"Buying puts out in the July or Dec on new-crop would make sense if you don't want to let go of the cash grain. I think people need to be looking hard at where we have come, and the fact we have July futures prices above $3.80 per bushel. It would be fair to take some action on a significant percentage of your crop," Balvanz said. "Put options locking in a floor option is the most conservative action to take."
An aggressive marketer is urged to use this market rally to sell cash grain and buying back call options, or hedging and buying calls.
"There's just too much potential in both directions to get late into the growing season and be unpriced."
Meanwhile, the short-term soybean market is seen leveling off in the final months of 2006, with the longer term outlook still bullish.
Marketing soybeans throughout the year, especially in the spring and summer is seen as a smart move by some analysts.
Anne Frick, Prudential Securities Financial, said producers should consider spreading the marketing out.
"When we are looking at a reduction in soybean plantings, we will see a rally in the spring and then make us vulnerable to a profit-scare rally in the summer," Frick said. "If I were a U.S. farmer, I would be wanting to hold some soybeans in reserve to sell in the spring and summer months this next year."