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Mother Nature rattling marketing nerves

Updated: 06/15/2012 @ 3:13pm

DES MOINES, Iowa (Agriculture.com)--With so much uncertainty about tight supplies and weather surrounding the U.S. corn and soybean crops, farmers are scratching their heads about whether to keep a firm grip on old-crop or price some of what's in the bin and what's growing in the field. On the flip-side, market advisors want their farmer-customers to get protection for their crops by creating a marketing plan. The discussion revolves around what should be in that plan.

Conventional wisdom tells market-watchers that the corn market normally sees a $1.00 summer rally and soybeans receives a $2.00 bump. This year, there are a lot of "ifs" being thrown around. If a drought-stressed Midwest crop doesn't get much-needed rainfall, the current corn and soybean futures prices are not high enough, analysts say. However, if the rains come in the next few weeks and offer some relief, the current market prices will be seen as too high.

In Agriculture.com's Marketing Talk section, this week's discussion has centered around crop-weather and market angst. "If the market really wants the corn that is left now, it needs to up the antee to get at it...$7.00+ cash prices would probably empty the last few bins," rusureofit says.

"I wouldn't be so sure that thousands and thousands of farmers have corn left in their bins.....Many that I know have cleaned things out a long time ago......those bin augers rattle pretty loud when they are empty," roarintiger1 says.

Bryan Doherty, Stewart-Peterson Group analyst, says the farmers can strike a balance with market offerings. "We're encouraging farmers to prepare for $4.00 per bushel corn or $7 to $8 per bushel corn.  "Here we are in the middle of June. If we assume we're going to have normal type weather from this point, if you're not 25-35% forward-sold on cash sales, we think you ought to get up to that level," Doherty says.

On another third or more of the 2012 crop, farmers are urged to purchase some 'put' contracts to put a floor under their pricing, Doherty says.

At the same time, farmers should consider the upside potential, in the event of a weather market. "If this market really gets going, the corn sold on June 15th will really be a drag on overall price average. Farmers can pick up a fixed risk $6.00 'call' option. You don't have to spend an arm and a leg for this either," Doherty says.

Meanwhile, market uncertainty doesn't surprise Jim Bower, Bower Trading owner. Knowing that some of his customers have percentages of their old-crop and new-crop already sold, farmers could still see a very interesting weather-driven market between June 20-July 12 timeframe, Bower says.

"Even though some weather models show rain that could send Dec. corn futures to $5.00-$5.10 per bushel price range, I wouldn't be selling any corn below $5.10," Bower says. And, I've felt since Argentina and Brazil didn't do well with their crops this year, I've seen soybeans as the complex leader. I still believe that. The upside potential is huge, if we don't get the weather we need in late June-early July," Bower says.

Bower adds, "Between now and when South America produces another crop, who will provide the world with soybeans? It has to be the U.S. So, July-August timeframe could be very interesting for the soybean market this year. Technically, soybeans tell me they are the trading floor's leader."

Sitting on the proverbial market fence is not advised for farmers. Doing nothing with crop-marketing sets the farmer up for increased risks, analysts say.

"The only strategy that works well is that if you do nothing and the market rallies, yes you look like a genius. But, you are taking the most amount of risk if you do nothing and the market drops off. Now, you're in a world of hurt," Doherty says. "You're going to sell corn lower than you wanted. Plus, you'll be looking uphill at the cost of production.

In addition, this argument from farmers that 75% crop insurance coverage is good enough is the wrong way to base a risk management plan, Doherty says.

"That is not going to cut it, if you have a big crop. That revenue insurance will not kick in soon enough. It's a nice compliment to a farmers' marketing plan. But, they should spend money to market smartly."

Meanwhile, with cash basis levels screaming higher in various local areas in the U.S., processors are tipping their hand about needing corn supplies, Bower says. But, farmers should sit tight and watch the interesting summer weather market. "The basis is over $1.25 in Texas. So, the buyers are scrambling for corn. I'm hesitant to sell Dec. corn under $5.10. By deciding to take this new-crop to the bin, once harvested, I think we can get more out of the market by the end of the summer," Bower says.


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