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Farm Markets Are In A New Paradigm Shift

The market's volatility offers opportunity

Over the last six months, it appears there has been a shift in market sentiment, with most futures contracts establishing an uptrend despite a rise in the U.S. dollar. Historically, there is a rather strong correlation to downward-trending commodity prices when the dollar moves in an upward fashion. As we look ahead and try to explain why this may be, we want to encourage both producers and end users to recognize that market volatility could be on the rise in the weeks and months ahead.
For agricultural commodities, 2012 was a benchmark year with drought conditions in the U.S. rocketing prices to all-time new highs. Since then, four consecutive large crops (both domestically and worldwide) have left prices in an environment mostly below cost of production. We believe this is, from a long-term perspective, also when end users recognize the value of cheap commodities and begin to expand their operations, leading to increased usage. Growing world demand was evidenced in corn with a reduction in world stocks-to-usage in 2016/2017 despite a record U.S. crop. In other words, demand is a springboard that could lead to higher commodity prices. With energy prices experiencing a major drop in early 2016 and now recovering, along with expectations that world crops will not continuously repeat the high yields that have occurred in recent years, speculative money is beginning to find a new home.
Since late August in most all major commodities, price setbacks have proven to be buy opportunities as uptrends are beginning to establish themselves. The Goldman Sachs Commodity Index (trading near 650 in 2014) dropped severely to 270 in early 2016, and is now trading near 405. This is a basket of commodities and gives some generalized vision of the entire value of commodities, as this basket is made up of 24 different contracts.
With volatility comes opportunity. Embrace volatility and look for ways in which to manage potential price movement in the months ahead. Markets have a tendency to move on perception as well as momentum and attitude. These variables are generally unquantifiable, and often apparent and visible when prices begin to make larger moves. Preparation is key. Row crop producers need to be respectful of what appears to be ample world inventories. Also recognize that, with a growing demand base, less-than-ideal weather could be perceived as a shortfall of supply and, consequently, cause rationing.
Therefore, it is paramount to have a strategy in place to reward price rallies, and also to cover these sales should less-than-ideal weather be a factor. In other words, prepare to manage volatility and market price movement, rather than allowing volatility and price movement to manage you.
If you have questions or comments, or would like help in creating a balanced strategy for your operation, contact Bryan at Top Farmer Intelligence (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.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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