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February is weather market month

Al Kluis 02/04/2013 @ 10:04am

February used to be a good month to take a week or two off, if you were in the grain business. For most of the last three decades, prices would usually grind lower in low-volume range-bound trade. Since 2005, however, this has completely changed.

Now February is a very important month if you are selling grain or if you need to be buying grain.

Brazil is projected to produce more soybeans than the U.S. this year, and the total South American crop is now about 80% larger than the amount that grew in the U.S. in 2012. For farmers in South America, February is like the month of August for North American farmers. This is when the soybean crop can be made or lost.

As I drive to work in snowy Minnesota during the month of February, I am often speaking with customers in Brazil. In a global market, February is one of the big weather months of the year. That's because South America is projected to grow a total crop of 5.4 billion bushels of soybeans and about 3.8 billion bushels of corn in 2013.

The month of February is now what I call a major “change of trend” month. If crop-production problems develop in South American corn and soybeans, prices will usually rally. This sets up February as a great month to be making some cash soybean and corn sales in the years when prices rally.

However, if the South American weather is ideal and projections are for a large crop, then prices usually move lower into late February. This sets up late February as a good time for livestock feeders to be buying corn and soybean meal.

In the Corn Belt, the month of February is when U.S. farmers are carefully watching the price of December 2013 corn futures and the price of November 2013 soybean futures.

The average price for February will set the initial price guarantee on your crop revenue insurance policies. This price level — high or low — is an important component of what you need to factor into your 2013 market plan.

The type of policy you buy and the level of crop insurance policy are two of the most important decisions you make when you put together your risk-management plan for your 2013 crops.

Two variables

During February, you need to begin to work on your 2013 marketing plan. You should know or have a very close estimate of your costs. You still have these two variables:

1. The 2013 yield you will harvest. For the yield part of the equation, stay conservative and go with the five-year average that you've produced. Some farmers will build their budget using only the insured bushels they can guarantee. That is also a good option. You need to plug in a realistic number and be willing to change the estimate as conditions change like they did in 2012.

2. The price of the 2013 crop.

Trying to project the price at which you can sell is the most challenging part of the equation. You cannot predict the weather in the U.S. next spring and summer. You cannot predict how high or low prices will go. Acknowledge that and, instead of chasing someone who claims they can predict these unknowns, put your effort into building a plan.

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