Marketing with May snowfall
Most of the time, breaking records is viewed as a positive event. That is not necessarily the case when it comes to the weather. In 2011, my area endured record flooding on the Missouri River. In 2012, the issue was almost the opposite. Heat and dry weather were the worst in history for some farmers. In my case, the drought was not as bad last year as in the 1950s or 1930s. It was bad, nonetheless.
Here we are in 2013, not really expecting either one of the extremes as the last two years. Instead, Wednesday night we had the largest snowfall in history in the month of May. The effect of the snowfall on crop production remains to be seen. My take is that the results of the snow will be minor if the weather warms up and allows the planting to be completed nearly on time. In my early years of farming, planting corn on May 20 was considered normal. In 1971, I finished up on June 2. In those days, we were not aiming for 160 bushels of corn or 60-bushel soybeans. I suspect that planting corn in June with current yield technology would result in somewhat reduced yields from the optimum.
There is little that can be done to speed planting up, with the wet conditions that now exist. I have found that I can begin planting a day or two earlier using no-till than when I once had to stir the soil ahead of the planter. That decision was made during the winter preparation, so there is little that can be done now. On a side note, I finished my corn planting Tuesday evening. So delayed planting is no longer an issue for me. There are advantages to farming only 215 acres! Usually, I try to get started planting corn while the wild plums are blooming. This year, I have been done three days and the color is just starting to show in the plum thickets. Appearances are more like working in the field in December than planting corn.
The next issue is how to handle marketing under these conditions. We have already seen the results of farmers and traders thinking that the late planting could possibly cause yield reductions. With supplies of both grains as tight as they are, any reduced yields could have a multiplier effect on prices. My theory is that delayed planting may make for short-term price increases but seldom results in long-term bull markets.
A look at multiple-year charts shows the advantage of making sales during the current period. In a normal year, I like to make sales of new crop grain in April and May. In years when there are no planting delays and there is no summer drought, early sales in April or May frequently are close to the year’s high. In years when there is a big weather scare, there are frequently opportunities to cover earlier sales with call options before prices head higher. Sometimes those options expire worthless. Sometimes they save the buyer a lot of margin call headaches. This year, I would like to see new crop futures at a higher level, closer to the old-crop price before selling ahead.
The current run-up on corn futures appears to be an opportunity to liquidate old-crop grain still being held in bins on the farm. If there is more rallying to occur in new-crop futures, it would seem to be an opportunity for forward pricing. The same goes for soybean marketing. Prices for beans have not responded as well as for corn, because of less effect of late planting. If the wet weather continues, soybeans should join in the excitement!