Outlook: What the Market is Telling You

March 17, 2017 11:34 AM

We are fast approaching one of the most volatile and unpredictable times of the year for grains. As suggested in previous columns, I believe corn acres will fall to 90 million and soybean acres will come in at 89 million. 

This means the spring planting weather will have the first big impact on the markets. The more cooperative the weather is for planting, the more we can expect corn acres to drift up a little and soybean acres to decrease. However, even after the crops are planted, the market will be extremely sensitive to weather and its effect on yield. 

During this time of year, it’s often difficult to make decisions. Use the following guidelines and tools to help get through this period. 

Management: The first step is knowing what you want to accomplish. The more specific your marketing plan is, the easier it will be to implement. What is a fair return above all direct and fixed costs? I realize all producers want a 100% return on investment, but be honest with yourself. I suggest 10% for 2017 and 20% to 30% for 2018 if offered this summer. 

You need to also understand the strengths and weaknesses of each marketing tool available to you. Cash is the easiest, but many times it’s not the most flexible. Futures contracts are very flexible, but they have no cap on cash flow. Options are more complex and can have a higher long-term cost than futures. 

Knowing each tool’s strengths and weaknesses—and how they merge with emotional tolerance and cash flow—is critical to the overall implementation of a marketing plan. The more you think about your strategy now, the easier it will be to survive this summer.

Fundamentals: I will be closely watching how the equities, energy, U.S. dollar and interest rates influence the overall psychology of the outside markets and any potential bullish or bearish impact on commodities. It will also be critical to watch weather. I’m not referring to what is happening out your back door; look at the whole picture to see what is affecting the overall commodity supply chain. This is perhaps one of the hardest things to do, but it is critical to being ready to take advantage of pricing events when they occur. Finally, when we get into the critical time period, do the markets stop going up on bullish fundamental news? This is a big flashing red alert!

Technical Indicators: Be looking for specific technical indicators to trigger implementing your marketing plan. Follow these steps: 

1. The first indicator is time of year. I know from historical context that, if the market gets past the middle of June and corn crops have been planted, we are running out of time for weather. Granted, soybeans can wait until August. This is why many times your corn marketing plan must be separated from soybeans. 

2. Once we get into the time period for selling, it trumps the target prices desired. 

3. You must respect a violation of technical support as bearish. If it’s supported by rising open interest, widening basis and a general improvement of bear spreads, these factors would suggest an aggressive short bias even if target prices have not been achieved. 

Understanding how all the moving parts of our markets work and watching and listening to what the markets are telling you rather than what you want to hear is perhaps the hardest factor to figure out. Making these decisions while you’re in the field planting makes it even more difficult. If you practice good marketing skills, over time they become almost second nature to execute.

Any opinions expressed herein are subject to change without notice. There is a significant risk of loss in trading futures and options, and trading might not be suitable for all investors. Those acting on this information are responsible for their actions.   

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Spell Check

Dodge City, KS
3/27/2017 10:20 PM

  The market is telling me , your going broke you dumb farmer.Going to be my last year I think. Whole lot a work for a whole lot of nothing.

Brad Shultz
Gordon , NE
3/24/2017 01:56 AM

  Remember how gorgeous last fall was, and it lasted way up late in the year. Everyone got a real nice job of fall tillage. We don't need a perfect spring to see a lot of corn planted given the condition of the farmground.

Greensburg, IN
3/20/2017 10:50 AM

  Sound advise assuming you have a low cost operation. Know your break-even (including putting food on the table). A 10% return may work for some but not for others. With U.S. and World supplies at current high levels not sure markets will need to rally as high as in the past?? However, if these markets have taught us anything... they are impossible to judge. So avoid swinging for the fences. Try hitting multiple singles. Set goals and execute.


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