Head to Head: Prepare for Shaky Prices

March 21, 2017 10:18 AM

Q: The corn and soybean markets spent most of fall and winter mired in a trading range. Besides weather, what are a couple of key factors you are watching that might break these commodities out of that range? In addition, what should producers do now before the volatility likely picks up in March?


Forward-Price Bushels As Consumption Rises

Just when you’d think the U.S. and world markets would come under extreme pressure, the resiliency of worldwide consumption continues to outshine global production. Yet record demand is squaring off with record supplies, leaving the market to jostle with questions such as: How will we sustain record usage? What will worldwide weather bring? What will acreage mixes be in the future? 

None of these questions is as important as farmers’ potential for 2017, though. As you put together plans, be aware future price action in the market doesn’t care what plans are in place. If your plan shows profitable returns right now, brush up on crop-insurance fundamentals and execute a marketing plan that eliminates as much risk as possible. Forward-contract insured bushels that are guaranteed to you. It isn’t a given that opportunities on the table at $3.90 December corn and $10.25 November soybeans will stick around. 

Make sure to understand prices available for spring and summer deliveries in 2018. Until the next black swan, U.S. farmers should focus on dimes, perhaps quarters, to ensure they stick around in the game.

Contact Jarod at jarod.creed@gavilon.com


Sell Soybeans And Lock In Floors As Spring Nears

Winter trading ranges are likely to break out to the downside as spring nears, led by soybeans. Allendale calculates soybean acreage will increase 6.22 million acres. Using a 47.1-bu.-per-acre trendline yield versus the 52.1-bu. national yield in 2016, production should hit 4.18 billion bushels—the second highest on record—nearly identical to projected demand.  

That doesn’t sound too bad, but it represents a 10.6% stocks-to-use ratio compared to 5% in 2015, when November soybeans bottomed at $8.53 in September. With double the stocks-to-use ratio and actual ending stocks of 2.2 times more bushels than in 2015, it is likely this year’s low will take out the low of that year. 

Corn likely will follow. Lower acreage and a trendline yield of 168.2 bu. per acre versus the 174.6-bu. national yield in 2016 should result in a production loss of 560 million bushels.  

Outside factors to monitor include trade negotiations, China’s transforming stocks policy and possible exports, the value of the dollar, and the trajectory of interest and inflation rates. 

Get every soybean sold or lock in a floor on any unsold bushels. After the planting sell-off, aim to cover half of that position with calls.

Contact Bill at bbiedermann@allendale-inc.com

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 the advice we give will result in profitable trades.


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