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Reowning Crops Is a Good Idea, Analyst Says

After May, prices have moved downward.

Corn, bean, and wheat prices topped at the end of May, starting a downtrend.

Tariff concerns, good growing weather, and technical selling all weighed on futures, and prices have not looked back. New contract lows were scored in soybeans and corn this week, as most producers are enjoying an excellent start to their growing season and the market is factoring in potential for yet another record crop.

To acknowledge, though, some are not in great shape, particularly the I-90 corridor of South Dakota, Minnesota, Wisconsin, and northern Iowa where excessive rains have been a problem. Still, the axiom “rain makes grain” has merit, as a rainy June is the primary reason for lower prices.

Research indicates that crop ratings early in the growing season have very little correlation to final yield results. However, as the season progresses, ratings become more valid.

Therefore, this year’s highly rated crops for the first week of June did not mean much, as the entire growing season was in front of farmers. Weather could change and quickly have adverse effects for growth and maturity.

June came and went, and ratings remained high, reflecting near ideal weather and excellent crop growth. Traders reflected this good growing news, anticipating a crop on schedule for trend-line yield (174 bushels an acre for corn and 48.5 for soybeans), and prices slid to new contract lows.

The ramification of low prices early in the season is difficult for producers and a benefit for end users. Long-term planning decisions (such as livestock expansionary plans) have been accelerated due to value buys of feed inputs, as prices of corn and meal hover near three-year lows. The crop is not “in the bin” yet, as there is plenty of time for weather adversity. It is not unusual for a price bottom to occur around July 4 if crops get off to a good start in the growing season. July 4 is also a potential turning point, as end user buying increases and farmer selling dries up.

When prices drop, it feels like you can never have enough sold. On the other hand, with prices so low so early in the season, and world supplies continuing to trend downward, end users should be aggressive to solidify needs sooner than later.

While doing nothing can be a strong benefit, at some point, doing nothing becomes the wrong decision.

End users need to recognize strong value and begin purchasing. We don’t believe there is an appreciable expectation for continued downward price potential, so now is the time to step up and shift risk through cash purchases, buying futures, or call options. If you are a corn producer, now is the time to be patient.

Prices are below the cost of production, and we don’t see a compelling reason to sell into weakness. Although, quite the opposite may be true if you forward sold at much higher prices. This may be a time to begin looking at reownership strategies.

 

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If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM, 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.

Carol Tillmann 
Front Desk Administrative Assistant | Stewart-Peterson
Office: 800.334.9779 | Fax: 262.334.6225
ctillmann@stewart-peterson.com

www.stewart-peterson.com

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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