Head to Head: New Year's Price Strategy

January 6, 2016 02:18 AM
Head to Head: New Year's Price Strategy

Q: As we flip the calendar to 2016, we will be entering an important marketing window for producers who have become tight holders of 2015 crops. Can you provide our readers with your general price outlook and some key features for the first quarter of 2016 as producers look for pricing opportunities?

Mark Gold
Managing partner
Top Third Ag Marketing

Stay Positive and Evaluate Options

Although there is a lot of doom and gloom being bantered around, I remain optimistic there will be at least one solid marketing opportunity in 2016. If my memory serves me, in every year since 1972, American farmers have had at least one marketing opportunity to lock in or protect prices at profitable levels. In many of those years, the opportunity came in the summer months on a weather scare. 

Keep in mind, farmers are still storing excessive amounts of old-crop corn and soybeans, which will limit rallies. With the current glut of grain around the world, it will be imperative that producers look for that opportunity and take advantage of it when it happens. The situation in agriculture could become more serious if farmers produce huge crops in South America and here in the U.S. next year. 

Two marketing strategies could work well in 2016. First, be prepared to make cash sales on a 40¢ to 50¢ rally in corn or a 70¢ to 90¢ rally in soybeans. Once you make those sales, look to buy a call option to replace those sales in case prices move higher. Second, buy put options on a rally to protect profitability and keep higher prices available to you. Execute a plan consistent with your risk tolerance levels.

Contact Mark at http://mgold@topthird.com.

 Bill Biedermann 

Keep an Eye on Rate of Farmer Selling

Grain markets in 2016 will likely remain range-bound as they are hip deep wading through a cesspool of information and inventory. January final production and quarterly stocks are typically market movers. 

Most farmers are holding more ownership than normal. Historically speaking, that is bearish, as one bin after another opens up, feeding the pipeline. Yet farmers seem much stronger holders than in the past. Thus, the rate of farm selling will be closely monitored. Events in Argentina and Brazil as well as the debate over country-of-origin labeling will challenge the U.S. 

The really good news is that fund buying is out and end-user buying is in. In the short term, the U.S. farmer is competing in a large supply market with an uncompetitive dollar value. Corn at $4.10 to $3.70 gives farmers and end users good hedging targets. For soybeans, $9.25 to $8.50 is likely and for Kansas City wheat, between $5.25 and $4.75. 

Expect this situation to limit or restrict rallies from taking out key resistance and for support to occur when supplies shrink. If there’s a weather issue, an impressive rally could ensue as fund money roars back. As spring nears, expect the range-bound market to expand.

Contact Bill at bbiedermann@allendale-inc.

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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