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Farmers urged to be patient with new-crop pricing, analyst says

Selling now would be a regrettable action, analyst says.

With the coronavirus changing the world in a matter of weeks, one could say the world has been turned upside down.

In the midst of the pandemic, worries, fears, and uncertainties surround us 24/7. There is no escaping it. Everyone and everything is affected.

Markets, whether commodities or equities, have reflected consumer concerns by shaking off risk pricing in bad or even worst-case scenarios. Yet, even the most risk-averse financial adviser will likely encourage you to stay the course and not panic, now that values have been slashed.

READ MORE: USDA seeds the U.S. corn, soybeans stockpiles growing Thursday

Farmers, while worried, should not panic, as they face prices below the cost of production for the crops they are about to grow. Acceptance of “it is what it is” may be the most appropriate attitude currently. Moving forward, you can expect that, once the pandemic subsides, price recoveries will occur. The world will still consume food, and the need for continuous big crops will be paramount.

So, is there a best approach? While it is always possible for commodity prices to move lower, selling now would likely be a regrettable action if, in fact, prices do recover. If you were not willing to sell a few months ago, it probably still does not make any sense to sell now. The funny thing about markets is that, once people think they have them figured out, they are usually wrong.

What we all have today is information packaged with a lot of emotion and questions. “What if prices continue lower? What if Russia continues to pump oil? These questions are but a few of the endless questions we could ask ourselves. Most emotions reflect what we know today, and if the trend of the last few weeks continues. What if the trend doesn’t continue? Corn and soybean producers have a lot of something, and that is time. You have time to market your crops you are about to produce. Be patient; this situation will change.

Strategically, now is a good time for feed users to lock in harvest-type low prices. It is also a good time for row-crop producers to purchase call options to cover future sales. The emotion and information in the marketplace could look a lot different down the road. We know, provided good weather, good crops will likely be produced.

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Selling rallies is prudent, and it takes a lot of courage to sell enough that matters to your bottom line if prices (even after a rally) reflect good production. The market psychology will likely change when prices move higher reflecting new information to suggest a continuation of that trend. We all know price rallies can end abruptly, and selling enough before they turn lower is the challenge. Take time now to plan for a price recovery. How many bushels do you want to sell, and how will you cover those bushels in case weather becomes a factor?  At what price level would you be willing to buy puts on expected production you do not intend to sell? Strategy will win over emotion.


If you have questions or comments, contact Top Farmer at 1-800-TOP-FARMER, extension 129. Ask for Bryan Doherty.

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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