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Reowning Crops Is a Good Idea, Analyst Says
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.
If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM, ext 129.
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