It’s Time to Start Marketing Your 2019 Crops
There is always the need to seek out marketing opportunities. It’s only late fall 2018, yet with December 2019 corn futures trading above $4.00, it is worth keeping a close eye on this contract. November 2019 soybeans above $9.50 also deserve a look. Corn and soybean futures have a tendency to move upward into the period of greatest uncertainty, which is late winter and early spring. During this time, about six months of usage is behind us, and all of the uncertainties regarding the upcoming crop are ahead of us. Uncertainties include acreage, yield, weather, technical trade, money flow, and even politics.
Early in the process of marketing, it may be helpful to look beyond all the chatter and focus on value. Value sales happen when you lock in favorable prices early in the marketing season despite thoughts of prices moving higher. If prices do move higher, even though you may regret early sales, most farmers will have a spectrum of sales, lower to higher. The old saying, “you hope the first sales are your worst,” implies that your unsold crop will be worth even more. It also suggests opportunities to lock in higher prices on later sales.
In recent years, corn prices have experienced limited price rallies. Though we’ve seen rallies, they have quickly fallen apart. We’ve had big crops, with much of the inventory unpriced at harvest. You and others may have regrets about not making more sales in advance of harvest. Had summer weather been adverse, the mind-set might be much different. Nonetheless, today’s growing mind-set is to sell early and often in order to take advantage of opportunities, as slim as they may be. For corn 2019 futures, we believe this is a price window of $4.00 to $4.25. Consider selling 25% to 50% of expected production.
Similar to corn, November 2019 soybean futures have experienced limited rallies, however, they have recently traded above $9.50. The $9.50 level has not been seen since mid-June. This recovery could be from expectations for strong demand and repaired relations between the U.S. and China. Many U.S. producers have experienced consistent and dependable soybean yields in recent years and feel more confident forward selling. Due to big near-term inventories and projected long-term inventories that could be overwhelmingly large, starting new-crop sales makes good economic sense. If early sales happen to be your worst sales, this is likely a good problem to have. Without a weather event, a big enough decrease of projected world inventories is unlikely. Therefore, rallies need to be sought out, and used as selling opportunities. The markets are not forgiving. Rallies can fall apart so fast, it is hard to make enough sales to significantly improve your bottom line. Waiting is likely not a good solution.
Strive for a balanced approach to your marketing. Consider forward selling up to 50% of your crop and buying puts on the other 50%. This provides a price floor on 100% of your expected production. To balance this move, purchase call options. Call options will serve two functions:
- Retain ownership of forward sales.
- Provide confidence and discipline in selling. It is common for farmers to begin selling, and then (as prices move higher) feel as though they have made a mistake, so they stop selling. In hindsight, this may be exactly when they should have added more sales.
Take the time to lay out a strategic approach to your sales, knowing how many bushels you want to price and at what levels. Get your orders in place. Consider a balanced approach on your entire crop, which means more than just concentrating on selling a few bushels. As summer weather unfolds, prices could rocket higher or fall apart. You can’t control the weather; you can manage the price volatility that comes with it.
If you have questions or comments, contact Top Farmer at 1-800-334-9779, 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.