Market Outlook: Yield Uncertainty Slows Sales

August 30, 2011 08:12 PM

Hedging activity by our advisers slowed during the past month as uncertainty regarding the size of this year’s crops began to grow. The average 2011 crop sales levels for the 10 advisers included in the Archer Financial Ag Hedge Program increased only 6% in corn and 9% in soybeans compared with the previous month.

The advisers who advanced sales once again seemed to prefer the cash market over futures, perhaps in an attempt to escape some of the volatility that the futures markets have experienced.

"As the analysts’ yield ideas decline, it will be interesting to see if their hedge positions are reduced," notes Scott Harms of Archer Financial Services. "At this point, very few advisers have shown any interest in offsetting their hedges with futures or options to reflect a potentially declining crop size."

When farmers ask for counsel on what yield assumption they should use in their marketing plan, Doane Outlook Hedger recommends using an "Olympic average" for the farm.

"We suggest they take their actual yields for the past five seasons, eliminate the best year and the worst year and average the remaining three, using that as their yield assumption," says Doane’s Dan Manternach. "This will lower the risk of overselling if weather proves only average at best and will give them some bonus bushels to sell if yields turn out to be above their base yield assumption due to better-than-average weather."

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