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Markets Now: Prices Dive, Look For Opportunities, Maintain Ownership

16:07PM Jul 13, 2018
Elevator with clouds 16

Grain Elevator( Darrel Smith )

This week’s World Agricultural Supply and Demand Estimates (WASDE), combined with tariffs to China, caused grain prices to take a nosedive. Some farmers are reaching the end of their rope as frustration turns to anger.

“Last week, up until Friday, everything was good, we saw a nice recovery and market—things felt like they were getting better,” says Steve Georgie, with Allendale on this week’s U.S. Farm Report. “But then this past week we end up having lower lows… Farmer attitudes have become angry and now [the question] is ‘how low is it going?’”

As prices grind lower, some farmers and analysts are trying to find something to blame and tariffs top the list.

“We have no doubt [tariffs are] part of it,” says Brian Doherty with Stuart Peterson. “But it’s [also] good weather, good crops, good farmers, good tillage practices—a lot of good things. It’s a poor technical picture right now, since May 29, when the markets peaked, we’ve tipped over.”

Adding insult to injury, many farmers still have old crop in storage and need to get it sold before harvest—but it’s hard to sell when it means selling at a loss.

“Get your business hat on. Don’t get frustrated,” Doherty says. “There’s opportunity for farmers to shift risk. There is still carry in the market. You can sell deferred call options, you can add value—and sometimes there’s a time to do nothing, and that may be one of those times right now. But, if you’ve got old inventory, you know you’re going to have to bite the bullet sooner or later.”

His recommendation? Farmers with carry should retain ownership, stay long if you’re going to stay long, and shift your ownership style. Don’t wait for the rally and then try to figure out how to get into this market.

“If you’re going to have to make these decisions at a time where you don’t want to, you need to find a way to stay non-marginal,” Georgie says. “Buy that call, find some way to have that real ownership—that’s going to satisfy your banker as well. We don’t know how low this is going to go, we have no idea where this is going. But you need to maintain that ownership if you need to make that sale.”

It’s important to keep an eye on the markets. USDA is calling for a 1.55 billion carry over. While there is potential for a record crop, there’s always potential that weather, or other events could adjust yields downward on the next report—that’s why experts recommend you have control [ownership] of your old crop sales.

Still, the markets are behaving in a way farmers and analysts might not expect. The country’s stock to use ratios are declining, and farmers typically expect an inverse price relationship—that’s not what’s happening. Overall good conditions, the expectation of a good crop and uncertainty with tariffs means it’ll be nothing short of a challenging marketing year.

 “We're about to the max downward that markets typically get, I don't have any new news to say today's turn around date,” Doherty says. “Ironically last year we peaked on July 12. So, we’re looking at something opposite.”

Markets Now 071318