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Upward-Moving Markets Pique Farmers' Interest
The recent recovery in grain markets, particularly in soybeans with a sharp rally in soymeal the past week, is peaking farmers' interest.
Marketing is starting to surface as a more important priority with many of you taking action. With prices in a prolonged sideways pattern for both corn and wheat through most fall and winter months, there was not much marketing action to incorporate, other than being patient.
Both of these markets have begun a recovery that dictates monitoring. Soybeans, on the other hand, have been choppy the last several months, and have recently recovered to price levels not seen since early December. A more urgent call to action has developed with good value proposition offered for both old (2017) and new (2018) crop.
When looking forward, there's no shortage of analysts who will try to put a spin on where they believe prices will go, and the variables that will provide price direction. In the end, however, most of us are either wrong in guessing price direction, or in the timing of a market move.
It is difficult to outguess weather, politics, acreage, and a multitude of other variables, let alone determining if it will rain in Argentina next week. We will, however, suggest and encourage producers to put emphasis on strategic marketing that is strategy-based, and not so much predicated on outlook.
Outlook-based marketing has a tendency to utilize tools that work only when prices move where anticipated. At best, it's an educated science. At worst, it's a guessing game. Even a broken clock is right twice a day. Yet, from a historical perspective, there is a general seasonal pattern to row crop commodities.
When supplies are plentiful, prices are usually lower. As uncertainty grows concerning future supplies, prices are generally higher. Typically, uncertainty in grains is greatest in the late winter and early spring months when all of the variables for the upcoming crops in the Northern Hemisphere are unknown. Throw in the mix of uncertainty on crop production in the Southern Hemisphere during January through February, and there is more uncertainty to support prices. Yet, being aware of how big inventories are and what potential shifts in supply could occur can help you to align yourself with the right strategic approach.
While there are many ways to approach your marketing, a balanced approach that utilizes selling tools and re-ownership tools will help you to develop an approach that prepares you for whatever the market may do. A simplistic and powerful strategy is forward contracting 50% of your expected crops, buying puts on 50%, and buying calls on 50%. In the end, this puts you in a position to have 100% of your expected downside price risk protected. And, if prices were to rally, only half the crop is sold, so the remaining half can appreciate in value. The call options that are purchased cover the forward sales, or hedges. If implemented in the winter and spring months, you are prepared for summer when prices could be screeching higher or tanking, depending on weather developments. You can rest easy, because you have taken the steps prior to the advent of weather volatility to guard against either of these scenarios. Your marketing approach is balanced, and you are ready for whatever occurs.
If you have questions or comments, or would like this strategy implemented for your operation contact Top Farmer at 1-800-TOPFARM, ext. 129.
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Carol Tillmann Front Desk Administrative Assistant | Stewart-Peterson Office: 800.334.9779 | Fax: 262.334.6225 firstname.lastname@example.org
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