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It's All About Mid-Summer Weather for Grain Markets
For the better part of a year, grain analysts spend their time assigning weight to variables that could affect things such as planted acres, production, carryout, and ultimately the price of commodities.
Through the winter months, farmers attend meetings digesting this information in an effort to make informed and smart decisions regarding crop marketing. Everyone is looking for an edge. Yet, weather is the most dominant factor that affects price. On the one hand it seems simple: Let Mother Nature take her course, and this will determine price. You live with the consequences at harvest.
On the other hand: You take action by analyzing and using the best marketing tools at your disposal in order to create a balanced approach to marketing.
In most years, it often boils down to midsummer weather either making or breaking the crop. This year, the midsummer forecast looks hot and dry.
Crops could be in trouble in a hurry if timely rains do not occur. If rainfall doesn’t happen soon for farmers in the Dakotas, Nebraska, and other parts of the western half of the Midwest, crop potential could begin to decline with little or no chance of recovery. The fear of tightening inventory is already reflected through sharp gains in recent sessions. Yet, one flip of the switch with a change in the forecast, or more-than-expected rain, and prices are vulnerable to a significant sell-off.
For many, the anxiety of selling into rally is more troublesome than when prices move lower. Misery loves company, so if you didn’t sell and neither did your neighbor, then both of you are in the same boat.
Selling when prices are trending higher is going against the grain of price trend. If you are wrong and prices continue upward, you may be down on yourself, even though you knew it was the right thing to do. You are not sure what to do next. You may feel isolated, as if you were on an island. Selling more could compound the issue, or be the right thing to do.
Stay steadfast and disciplined with marketing. Sell rallies, yet have a global view of all your expected crop. That is, sell into rallies using a percentage of the whole crop that makes sense for you.
Buy call options to cover these initial sales. If prices do move higher, not only can you add to your sale price, you will also have confidence to sell more. Purchase fixed-risk put options to protect downside prices and create the last step to a balanced approach.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129.
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