You are here

Feed Buyers Stay Alert

Since the drought-shortened crop of 2012, feed prices have traded in a sideways to lower pattern, priced at what many end users consider a bargain. We believe end users could continue to enjoy plentiful supplies in the near term based on a general deflationary period for commodity prices, along with excellent crop production. Longer term, if crop conditions are anything less than ideal, growing domestic and world demand (at record levels) could quickly eat through supply. The key for end users is to stay alert, and prepare to pull the trigger on needs for the year ahead.

Staying alert doesn’t mean trying to outguess the market by pouring through charts, news stories, and supply and demand tables. It means staying aware of current price levels and factors that may affect future prices. Understand that, even though prices are at good levels for buyers, and crop conditions are less than ideal, it won’t take long for prices to rally. 

Volatility in the corn, soybean, and wheat markets in 2018 was larger than in 2017. The trading range for each commodity was larger as well. Both are signs of change. Despite large inventories and recent record yield for corn and soybeans, downside potential is limited. This past year’s low prices were higher than the previous year’s lows. This implies that either speculators, end users, or both are willing to buy on price setbacks. Expect that trend to continue.

For the second consecutive year, the world will have used more corn in 2018 than it produced. World wheat carryout has been narrowed by more than 10 million metric tons. This suggests that key-producing regions of the world (including the Black Sea region, Russia, and Eastern European countries) may have limited supplies of exportable wheat. Any production problems elsewhere in the world’s key wheat-producing countries could quickly ignite a price rally. South American soybean production is paramount to meeting world demand, and conditions that are anything less than ideal will likely provide support. However, of the three, soybeans may have the biggest ladder to climb as tariff constraints, excellent crops, and huge inventories will likely keep price rallies in check, at least for now.

For feed buyers, continue to buy as needed. Be aware that, from a long-term perspective, the market tends to move higher as uncertainty for the year ahead begins to grow. The reality is that we’ve already burned through six or more months of usage from this year’s crop, thereby shrinking supply. Use price setbacks as an opportunity to secure inventory, or purchase call options. In most years, weather is good enough and price rallies are limited. Still, there is just no way to tell when or how the year ahead will unfold. It is best to be prepared rather than try to outguess the weather. Often it boils down to one or two rain events that make a difference. Use strategy rather than hope or guesses to make good risk-shifting decisions.

-----------------------------------------------------

If you have questions or comments, contact Top Farmer at 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.

Read more about

Tip of the Day

Tech Tip: Do the Research

Before you make a purchase, do some research on the piece of technology you want to buy. This helps ensure you're not overpaying but also... read more

Talk in Marketing

Most Recent Poll

How much of your 2019 corn crop is planted?