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Weather Market Rules

05/05/2014 @ 7:22am

Most farmers who've been farming for very long remember examples of when the market prices were moved by weather problems. In 2014 some of the move was caused by cold weather in Northern growing areas. Some of the moves were caused by excess rainfall that delayed planting. Still others were moved by lack of precipitation and fears of another drought. Regardless of which of these factors was the cause, grain prices responded by rallying in response to the fears that production would be reduced by the risk.

Having farmed for 45 years and studied markets for almost as long, I have experienced my share of production problems caused by the weather. In that time, I have developed two theories as to why markets do what they do. Maybe more important is learning to recognize the weather rally as a marketing opportunity and learning to deal with it in a rational way. The long-term goal is to put as much of the rally as possible in the bank.

The first rule of weather rallies is that the weather seldom changes gradually. It is more likely to go from too dry to too wet overnight. While most of us would prefer to make changes gradually, that does not seem to be the way nature works. An example of this happened to me in 1997. The spring and summer were dry that year. There was just enough rain to germinate the crops. Planting was early. The corn looked good - for a while. My family took a vacation in late June. We returned home the last week of the month in time to see the corn turn white from lack of moisture.

The whole month of July was without rainfall. I was on the local elevator board at the time. I remember that a farmer who lived south of town started getting rain on August 1. By the time the rain area got to my farm, my colleague from the southern area had almost a foot of precipitation. My farm went from normal to dry and back to wet in less than one season.

At one time, I farmed several farms on the Missouri River bottom. Dealing with weather was always challenging on those places. I remember one year in particular when the planting went very fast because the soil was quite dry. The corn and beans came up quickly. It was not long, however, before the crop was showing stress because it needed rain. I wanted to forward price the production from that farm. I was afraid to sell anything for fear of drought. One Friday toward the end of June, prices crashed. It seemed to be an irrational move based on the condition of my crop that day. However, on Sunday night a storm went through providing much-needed moisture for the crops. Corn that had been wilting on Friday was standing in water Monday morning.

I have never figured out how the market can anticipate rain that weather forecasters miss. We do not have to understand why nature plays tricks on us. We just need to know that it does and learn to sell when the time is right. Trying to understand how and why markets and rainfall work the way they do is an exercise in frustration.

The price moves Thursday of this week illustrate why we need to make sales when the time does not look logical. The selloff in the soybean market of 50 cents does not look logical. However, the long-term charts show very good odds of the high price of the year coming in the last week of April or the first week of May. From that perspective, selling is not just logical, it will probably be profitable as well.

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