Farm Markets Come to Life, Move Higher
The last week of January has had some fireworks, as the corn, wheat, and bean markets have all come to life with prices moving to their highest levels in months. It can be argued that wheat is the leader. We saw wheat futures prices rally mid-summer due to concern over lack of snow cover and continued dry weather in major U.S. winter wheat growing regions. More importantly, the technical picture indicates a significant buildup of short positions in recent months by managed money. Managed money goes short futures when they believe prices are headed lower. This position recently built to an all-time record high of over 150,000 net short contracts. Traders are likely to second guess how short they want to be as prices begin a recovery. With weather concerns beginning to mount in the Southern Hemisphere, helping to provide underlying support for soybeans and corn, it only took a few weeks for prices to respond.
Since the January 12 Supply and Demand report was released, both corn and soybeans have made price recoveries. Expectations were for increased corn yield and higher soybean stocks. These were proven correct with a record 176.6 bushels per acre forecasted compared to the previous estimate of 175.4. Yet, the market sold the rumor and bought the fact. Negative news was no longer negative. It didn’t take long for a price rebound, as traders bought a weaker opening the day of the report.
As we look ahead, volatility is picking up. The reality starts to set in that prices may have bottomed, supplies may have peaked, and end users are wise to secure inventory while they can. Harvest is several months removed and every day there is a little less supply. The production year ahead is filled with uncertainty. No one is arguing that supplies will tighten to the point of rationing. Yet, it doesn’t take a lot of imagination to argue that if less-than-ideal weather occurs, end-users and speculators could aggressively buy. Record demand is the other side of the coin that has been somewhat misplaced among the focus on record supplies. Yet, corn, beans, and wheat will see world record demand, and as demand grows, there’s less and less room for production shortcomings.
When markets begin to move, volatility can cloud clear decision-making. Set clear goals and defend sales through the purchase of call options. By being disciplined and making sales and retaining ownership, you’re now well balanced to embrace volatility as it returns to the marketplace. After three years of subdued prices and little opportunity, one concern is that producers will aggressively sell into rallies and not be well balanced. If adverse weather becomes a more impactful factor for crop production, futures prices could rally more than in recent years. Too much sold too soon brings on hand-wringing and regret, as producers wish they hadn’t been so aggressive. Bottom line, stay focused and balanced through the use of strategies. Markets are beginning to show life. With tight margins, there is little room for emotional error.
If you have questions or comments, contact Top Farmer at 1-800-TOPFARM, ext. 129.
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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.