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Feed buyers have some decisions to make, analyst says

Will this rally come and go?

Feed prices have made a substantial rally over the last 60 days on a myriad of new events that one might have thought unlikely. Nonetheless, the nature of commodity markets is dynamic and always changing.

By mid-August, specifically related to the August 12 Supply and Demand Report, it appeared there were plenty of projected supplies, both domestically and worldwide. Urgency to secure inventory was low. Fast forward to the end of October, and new contract highs established in soybeans and corn futures reflect otherwise. The question for feed buyers now is, do you secure long-term inventories, or is this rally something that will come and go, and your patience will be rewarded by doing nothing?

Doing nothing is an intentional strategy. This strategy often works well for feed buyers, as grain producers historically produce more than the market needs and, consequently, prices tend to stay relatively low. This year is different. Harvest lows came early, and prices have moved straight upward. As August unraveled, a series of events hit the marketplace all at one time. Consequently, prices skyrocketed.

December corn futures bottomed at $3.20 and have now rallied a dollar. Some events that occurred were high winds in Iowa, drought conditions in Iowa and parts of the western Corn Belt, strong Chinese buying, and more importantly, a massive flow of money that switched from short futures to long futures, as commodity funds recognized declining supplies. Add to that uncertainty with China, as weather (specifically, two typhoons and flooding conditions in August) may have reduced the crop anywhere from 5% to 10%.

At the same time, China, in order to make good on the trade deal signed in January, has stepped up to the plate and purchased massive supplies of soybeans and more corn than earlier forecasted. The hog herd in China is growing faster than anticipated, and the perfect storm of declining supplies in China and increasing demand have created an environment where prices may continue to move higher. 

As a buyer of corn and protein products, the question you now face is: Should you jump on board and purchase, or hold off? Our bias is to be balanced and strategic. While it is tempting to do nothing, keep in mind that all cylinders are clicking on the bull market right now. By historical standards, corn and soybeans may still be considered cheap. Therefore, secure your inventory or, at a minimum, purchase call options. Weather uncertainty in South America could be paramount. A late start to the planting season, due to dry conditions, suggests China could continue to buy U.S. products until weather concerns are alleviated. At a minimum, crops will be harvested later than usual. If you do purchase inventory, it is only natural to worry that you are purchasing near the top. The recommendation then would be to protect your purchased inventory using put options. The key to all of this is a strategic approach in a market that has very unusual circumstances unfolding. We haven’t even mentioned the potential impact of spiking COVID-19.

Have strategic conversations with your market adviser. Preplanning and strategy can go a long way to alleviate panic and stress, whichever way prices may go. Be sure to have discussions centered around your goals and needs, along with cash flow requirements. Hindsight may tell us that being patient and doing nothing could be a great strategy, or disastrous. The markets may be just starting what could be a rally not seen since the drought of 2012.

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If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 444.


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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