Weather Forecasts Are Not Gospel

In the past 6 months there have been several weather gurus all touting that July would bring record heat to Iowa. Some of these gurus told you not to sell corn, but to look for a sales target of $6.00. Some even suggested owning call options or futures along with the corn you had growing in the field; a classic example of a “Texas Hedge”. Unfortunately, December corn only traded to $4.40 before breaking 90 cents, leaving many disappointed farmers in the lurch.

NO ONE knows what the weather will do, and NO ONE knows where these markets are going. What we do know at Top Third is what the risk is, and how to manage it.

For example, when weather gurus tout hot and dry weather, we are willing to buy call options once we have made cash sales; particularly when we are in the bottom third of historical prices. However, that will not dissuade Top Third from recommending that our clients own put options to protect the downside on any unsold bushels in case the forecasts are wrong. Even if the forecasts are right, there are too many other influences that can send a market in an unexpected direction.

There is nothing wrong in trusting weather gurus, but use them to fine tune a marketing plan that encompasses the possibility of markets moving in unexpected directions. Marketing is about managing the risk, not “betting the farm” on anyone’s weather or price prediction- and that is gospel; Proverbs 11-26, “People curse the man who hoards grain, but blessings crown him who is willing to sell”. Can someone say Amen?  

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