What Just Happened in the Markets and What Now?
Ah! Summer market volatility – almost as fun as getting a shot. Last month we talked about ways to protect prices with cash sales or put option strategies, being mindful that the market has a tendency to peak around the 4th of July. I hope you got those cash sales locked in because the entire grain market looks to be headed lower.
SO WHAT HAPPENED?
The entire rally lost its luster when Brexit, the black swan of 2016, spooked the funds and made the U.S. dollar rally. Then, a week later, the June 30 USDA report provided a neutral to bearish slant, followed by crop-saving rains in the Midwest over the 4th of July weekend. This was the green light for the funds to scram and bail on long futures positions.
The trade is now assuming (based on the evidence of great crop ratings in the USDA weekly Crop Progress Report) that the crop is made. So, unless the temperatures are 90°F. or higher throughout the entire month of August with little to no rain, stick a fork in the idea of a rally. Seasonally, grain prices also have a tendency to work lower from now until harvest.
WHERE TO GO FROM HERE?
It’s time to get back into defensive mode. Technically speaking, corn posted a bearish reversal on monthly charts, and soybeans have a breakaway gap lower on daily charts; both are considered very bearish. Corn futures could target $3.25 in the short term, with beans staring at $10.00, and if that fails, it’s a quick fall to $9.50. With the U.S. dollar poised to stay higher, the funds bailing on long positions, and the crop deemed more than sufficient for now, the path of least resistance is down. Preparation is key to marketing, and by preplanning and being prepared, you’ll be many steps ahead of most. As a producer, you must be aware of the tools you can use to shift risk. Don’t bury your head in the sand. Doing nothing is a risk, perhaps the riskiest of all.
If you have questions, you can reach Naomi at firstname.lastname@example.org.
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