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Feed buying strategies

Agriculture.com Staff 03/21/2009 @ 4:00pm

Both corn and soymeal prices basically drifted since rallying in early January after a harsh sell-off in December.

Recently, the market has been in a gradual sideways to lower pattern but may have turned the corner last week with an impressive turnaround, followed by higher again this week. For feed buyers, obviously the cheaper the better, but the reality is that year in and year out, market volatility and wide swings need to be monitored for opportunities to shift risk.

From a historic perspective, the market may have more of a tendency to move higher in periods of great uncertainty, which typically is just prior to the planting season. In all likelihood, one of the bigger determinants of corn acreage is not what farmers intend to plant but what the actual planting conditions are that exist during the time of planting. In other words, a warmer and dry spring and a rapid start to planting generally suggests farmers will more aggressively plant corn in near ideal conditions. Yet, if the weather conditions are much like last year (cool and wet) planting becomes delayed, and there is a stronger possibility of a switch to more bean acres.

Bottom line is this: With the market beginning to show some signs of life, we do not want purchasers of corn and meal to fall asleep at the switch. This is a time of year prices have a tendency to gravitate higher, pricing in the upcoming year's uncertainty. This year, poor economic conditions have held corn and soybean prices down more so than the fundamentals for either of those two commodities would suggest. Therefore, if the economy begins to improve, which it may have with the recent recovery in the stock market, both corn and beans are in a position to rally. From an end user standpoint, a small rally in the winter months should not be a concerning factor, but the possibility that weather is a factor is always a concern. Therefore, as spring approaches and uncertainty increases, end users may more aggressively consider locking in longer term feed needs.

If you decide to go to the cash market, then buy PUT options to protect against a downward price move for the products you now own. If you prefer not to go to the cash market, use buy stops against futures contracts to get triggered in on further strength, or purchase CALL options as an insurance policy against higher prices.

If you have questions or would like more detail on specifics with strategy for your farm operation, contact Bryan Doherty at Top Farmer, 1-800-TOP-FARM ext. 129.

Both corn and soymeal prices basically drifted since rallying in early January after a harsh sell-off in December.

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Soybeans Rally on Demand, Weather