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End Users Be Ready, Analyst Says

Grain prices have slid the last 30 days after peaking in mid-July. December corn trading to $3.63¼ scored a new contract low as of this writing. Wheat and soybean prices continue to erode as well. Weaker prices are not sitting well with producers. Yet, from an end-user perspective, it is providing the best opportunity to buy in over a year. Supplies are considered adequate, which suggests end-users will not be aggressive and will likely buy only as needed.
 
While prices can move lower, it’s unlikely they will make an appreciable decline to make it worth the risk for buyers to do nothing. In particular, this year’s corn crop has been rated as the second poorest in a decade. The August USDA Supply and Demand report suggests it is the third-largest crop in history. Only time will tell the actual yield (and for that matter, total crop size). There are many who may support the argument that the highest yield estimate has already been established this month at 169.5 bushels an acre.
 
From a timing perspective, we’ll encourage end users to view the next 15 to 30 days as a potential low for prices. Last year’s low for corn and soybeans came on August 31. With a similar price pattern, as well as projected carryout, it’s unlikely that farmer selling will increase as prices move lower. Ultimately, a lack of farmer selling implies stabilization and a chance for prices to recover into the winter months. In addition, there’s a strong likelihood that subsequent USDA reports could trim yield based on this year’s crop ratings, as well as farmer feedback. Sometimes, suppliers are not willing to provide a favorable price when prices are low, as they have made few purchases, and have little supply to offer. In that case, consider buying futures or purchasing call options as an alternative. Call options provide the right, but not the obligation, to own futures, and act as an insurance policy against higher prices. Now is the time to plan and prepare. Set targets to begin buying and execute if prices reach those levels.
 
If you have questions or comments, contact Top Farmer at 1-800-TOPFARM, 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.

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