Content ID

279804

Market Facilitation Payment Offers Opportunity

A record carryout means the market is vulnerable to price erosion.

This year’s trade tensions with China added another layer of stress that farmers could do without.

Yet, in the end, this could prove to be financially beneficial for this year and years to come. It was announced this week that President Trump has signed a second payment through the Market Facilitation Program.

For soybeans, this would be another 82.5 cents per bushel, which equates to $1.65 for the year. November new crop soybean futures were trading near $10.50 in late spring.

The opportunity to forward sell or hedge at that time was real. For many, an additional $1.65 could make for a very high average sale price.

From a longer-term perspective, if trade negotiations with China continue on track and a permanent truce reached, trade relations could fall back to what may be termed normal. Some say this past year has caused irreparable damage to trade, while others believe this will only be a temporary disruption over the history of the China/U.S. relationship.

We believe the latter.

Where there is a need, there is a way. A growing economy in China (albeit slowing) is still a recipe for continued strong demand from a reliable protein source, the U.S. soybean producer. As the year comes to a close, one positive spot for soybean producers is a year of high yield and now additional revenue.
 
That said, supply and demand will continue to move prices and bring with it pricing opportunities. With a lack of export sales to China so far in the 2018/19 season, this year’s projected carryout could be at 955 million bushels - a record.

A record carryout means the market is vulnerable to price erosion. If this is a concern for you, consider a strategy that protects you from lower prices, and at the same time, provides opportunities.

That is, sell the remainder of soybeans in storage and buy likewise bushels back by purchasing September or December call options.

The call options establish a long position, and allow you to benefit should prices go higher. As with any strategy, be sure to consult your advisor to understand the costs and risks involved.
 
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If you have questions or comments contact Top Farmer at 1-800-334-9779 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.
 

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