Head to Head: Assess the Potential for a Rally

September 30, 2015 02:44 AM

Q: Corn and soybean values have fallen sharply from their mid-July highs based largely on better weather in the second half of the summer as well as macroeconomic concerns. A year ago, both markets staged a mid-harvest rally in the face of record production. Could you discuss your outlook for prices this fall and what producers should be watching for that can create better hedging opportunities? 

Greg Wagner
President, GWX Ag Advisors

Seasonal Cues Drive Many Price Shifts

Projecting highs and low prices for row crops is challenged by seasonal pressure. Producers, end-users and the trade have not been the least bit reluctant to broadcast projections on yield, crop size and demand. 

Yet moving parts during harvest are best conveyed anecdotally. Ultimately, all elements are adjudicated by the indisputable prescience of USDA, which acts with exceptional integrity. Its resources and experience dwarf others.

All private projections on future price ranges, support levels and resistance levels have their genesis within USDA. The trade can pivot on a price bias once supply and demand are known. 

Producers and end-users confront a different environment than in 2014. The world is awash in grains and oilseeds. It will require price valuations to gravitate to levels to discover demand, demand and demand. Exports are essential. 

The overhang of row-crop supply starting to hit the market is likely to keep values capped near-term. Producers are encouraged to move grain with the objective of capturing the carry. U.S. soybeans are burdened with ample supply. Similar to corn, they don’t seem likely to enter even a nascent bull market any time soon.

Tommy Grisafi 
Risk Management Adviser, Advance Trading

Store Your Corn, Sell Your Soybeans

Although we would like to be able to pinpoint where prices are going to be this fall during harvest, there are still too many variables to be able to say definitively that corn will go here and soybeans will go there.  

Yet what we can do is look at some of the information the market is giving us and make smart choices based on that. For example, today we are looking at a carry of around 23¢ on corn and only 9¢ on soybeans. 

Regarding on-farm storage, there is some reward to storing corn in the bin and protecting the prices going forward using put options to guard against lower price movements. This gives liberty to sell higher cash values should the market give that opportunity. 

Conversely, even using on-farm storage, there is not much incentive to store soybeans. Selling them out of the field versus paying storage and interest is a better choice there. Selling cash soybeans might be the right decision looking at limited carry, but realize in doing so, you give up the right to sell at higher levels should they arrive in the next eight months. Buying a call option would allow you to participate in a rally should that event occur.

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee that the advice we give will result in profitable trades.




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