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Perception or Reality?

Agriculture.com Staff 07/07/2006 @ 12:50pm

The month of July is the time when grain prices move almost solely on weather. That is especially true this year with all of the speculative money in commodities and anticipation of big demand in the year ahead from the biofuels market.

When I do marketing classes on seasonal trends, I tell students that perception of weather is at least as important as what the weather really is.

It always seems that the closer a weather problem is to Chicago, the sooner the market perceives that there is a problem. That principle is easily illustrated by comparing last year's price action to this year's. Last year, the big weather problem was dryness in Illinois. The weather rally started early and the peak was over before July 1. This year, the weather problems are several hundred miles from Chicago. The weather rally in grains has been much less spectacular and seems to be going in fits and starts. Strength of the last two weeks was preceded by a sharp sell-off even though the dry weather was already starting to be apparent in many areas.

I wish I could tell you that I have some magic system for knowing how long the current rally is going to last and how high it will take prices. I do not. Nor do I have a good idea of how bad the weather problem really is.

I know that it is terribly dry on my farm and over most of southeast Nebraska. Parts of Nebraska are in a full-fledged drought, while others have had rainfall. For perspective, Nebraska is usually dry in the summer, so the amount of damage that has been done is a matter of conjecture. Dryness makes irrigation very expensive, but it does not necessarily reduce yields.

I covered my early corn sales with call options last Friday. I paid more than I had planned. However, I bought them cheaper than at almost anytime since March 1. I hope that I can get a sense of market direction in a couple of weeks so that I can liquidate them and salvage some of the premium.

This is the toughest time of the year to make marketing decisions. The seasonal direction for both corn and soybeans is down. The odds of prices being lower at harvest are about seven out of ten. However, it is a time when being wrong can be very expensive. Farmers have different risk bearing ability depending upon their financial situation and where they farm. That makes it almost impossible to give good advice that will be universally correct.

As stated in one of the postings on the "Marketing" talk page, setting goals based on the above factors and having self-discipline to implement those goals is a strategy that makes a lot of sense under these conditions.

The month of July is the time when grain prices move almost solely on weather. That is especially true this year with all of the speculative money in commodities and anticipation of big demand in the year ahead from the biofuels market.

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