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U.S. drought worries?
Is it too early to worry about drought or dry weather conditions? Most meteorologists, as well as most farmers, will probably tell you no. Yet, maps indicating drought conditions in the South suggest dry conditions permeating all the way to the Dakotas. It doesn’t take a lot of imagination to wonder what happens if drought conditions persist. Farmers in those dry regions will certainly tell you it’s on their mind, despite it only being mid-January.
There are certain times in the year when most of us notice potential changes in weather that could have impact. If you’re dry in late fall it’s not a big concern, however, most will likely argue that after January 1 you begin to pay attention. With mid-January on the horizon, and not much moisture in the forecast for already parched areas of the South and Midwest, farmers are already cautious when weighing forward contracting decisions. Sure, one rain could make a difference, but until that rain falls, most farmers will not be aggressively forward contracting. If you find that you are one of those producers currently in a dry pattern, use put options or some type of paper strategy that gives you the flexibility of price protection, and not the obligation to deliver.
For those who have good soil moisture conditions and are not worried about drought, don’t put all your eggs in one basket by not marketing based on dry conditions elsewhere. The old saying is, “plant in the dust and your bins will bust” could haunt those holding off making sales waiting for the “big” drought. A lack of action could prove fatal for your marketing results.
In a previous Perspective we outlined sell and defend strategies. With carryout tight in both the U.S and world, adverse weather could rapidly drive prices higher. Yet, normal type weather conditions prevail this year, pressuring corn prices to $4.00 or even $3.75. Take time to plan what strategy you’re going to use. The risks are greater than ever, and so are your opportunities. Make sure to manage both.
If you have questions or comments, or would like help implementing strategy, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.