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It's all weather

Agriculture.com Staff 06/09/2008 @ 9:17am

Now that June has arrived, price direction for crops will come primarily from one variable - weather.

All other factors pale in the importance to weather. Acreage numbers vary from year to year and, while changes in recent years have had an increased impact on price movement, are considered minor compared to weather potential to affect crop production.

Over the last twenty years, corn production has ranged between under 5 billion bushels in 1988 to over 13 billion last year. Improved genetics, tillage practices and better farmers have contributed to a more consistent crop. Yet, extreme adverse weather could still cut yield in half.

Conditions this spring have been less than ideal, but the corn crop has a history of bouncing back. However, this year's crop has been so affected by cool and wet conditions to this point that even the most optimistic corn analysts are suggesting a yield above trend line, 154 bushels, is not likely. Expect corn supplies to tighten. If weather in July or August is less than ideal, a drop of 15 to 25 bushels per acre is a reality. This, in turn, could mean extreme price fluctuation.

Bottom line, all bets are off when it comes to weather. It is generally safe to start the year assuming normal weather and production, but you have to make marketing adjustments as conditions warrant. If you are heavy on cash sales, which is highly likely due to high value, realize price could double if drought occurs. Yet, on the other hand, prices could slide $1.00 to $2.00 if crop conditions improve.

Therefore, those who are heavily sold should consider covering positions with some type of re-ownership, most likely out-of-the-money CALLS. If you are light on sales or waiting for the big rally, recognize that demand may not be able to absorb higher prices and, in turn, prices could slide. Have a balanced approach. You cannot outguess the weather, but you can be prepared to manage it.

If you have questions, comments or would like help implementing a strategy for your operation, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

Now that June has arrived, price direction for crops will come primarily from one variable - weather.

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