6 Strategies to Sell the Rally

January 27, 2016 02:02 AM

Just like the producers he advises, Ed Usset is ready to see grain prices get out of the doldrums.

“We desperately need a rally,” says Usset, a grain marketing economist at the Center for Farm Financial Management at the University of Minnesota. “Usually after harvest, you sell the rallies—but we haven’t 
seen much rallying.”

Yet with 2016 underway, there are plenty of reasons the commodity price outlook could change in an instant, including weather issues. Analysts agree growers need to be ready to act—or risk missing what could be one of the year’s few significant rallies.

So how do you know when to act? Here’s what the experts suggest for the months ahead.

1. Remain Realistic “We’re not looking at $5 corn and $12 soybean scenarios—more like $4.20 to $4.50 corn and $9 to $9.50 beans,” says Mike North, president, Commodity Risk Management Group in Platteville, Wis. “We have to make sure we’re framing up a plan to take advantage of those types of prices.”

2. Select Your Price “You need to have a minimum price objective tied to your cost of production,” Usset says. “Of course, there’s no guarantee we’ll get that … . That’s the son of a gun with agriculture.” Once you’ve established your minimums, you need to think about the higher side. “What’s my number where I sit up and say, ‘OK, it’s time to take action’?” he asks. 

3. Follow Headlines Some pay less attention to grain prices and more attention to what is moving the market. Identifying a rally worth selling grain is “less about what the price would be and more about what the event could be,” says Andy Shissler of S&W Trading in Downers Grove, Ill. “You know it when you see it.” Fund decisions, as an example, provide a hint of where the market is likely going. 

4. Leverage Volatility With the possibility of price increases relatively muted in 2016, especially in soybeans, even smaller movements such as $8.50 soybeans rising to $9.50 might be worth capturing, Shissler says. Take advantage of opportunities to lock in higher value than you might have anticipated.

5. Plan Spring Sales “Spring is ‘too-too’ season,” Usset says. “It’s too early, too wet, too hot, too dry. We get excited.” As a result, the market gets the jitters, too. The result? A reliable seasonal pattern of higher new-crop futures prices, which typically decline from May 1 until harvest. “The forces are against you after July 1,” says Usset, who recommends developing a pre-harvest marketing plan.

6. Exercise Caution “I really want to be one-third sold on new-crop corn,” Usset admits. “But December ’16 corn is $3.80, so I’m just not going to do it.” Could prices go lower? Certainly, but Usset’s not the only one who can’t stomach the thought of selling so far below the cost of production. “You may just have to do damage control into the winter for cash flow,” Shissler says.




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