Time for Patience as Prices Sink on China, Crop Conditions

July 27, 2015 02:05 PM
Time for Patience as Prices Sink on China, Crop Conditions

After the post-Acreage Report rally, it’s tough to watch grain prices sink. But watching and waiting might be the best course of action, according to Brian Roach of Roach Ag Marketing.

“I think what growers want to do is be patient and realize that weather in the future in the next year or two looks to me like it’s going to remain volatile, with El Nino coming on stronger, not weaker,” Roach said on U.S. Farm Report on Saturday, noting the recent flooding in Brazil. “If those types of weather patterns were to continue, that will affect our bean market drastically this fall.”

As of midday on Monday, November soybean futures stood at $9.38, down 27 cents.

That’s quite a drop from the June 30 high of $10.3725.

“I think if you sold here on this latest rally, good,” Roach said. “Now we’re going to find some sort of bottom here. We’re in buy signals, (so we need to) look for opportunities to sell, but wait for those rallies to come.”

Watch the U.S. Farm Report marketing roundtable here:


Why are prices falling so dramatically? Crop conditions and China. While heavy rains have left many  fields in trouble or even in prevent plant, other farmers are seeing healthy fields, with 69% reporting good to excellent conditions according to USDA’s July 20 Crop Progress release.

“Recent corn price declines indicate that the market is removing the production risk premium from the price structure in anticipation of another year of surplus,” said Darrel Good of the University of Illinois in a recent farmDoc Daily article. “The question is whether that removal is premature.”

While farmers wait to see how the growing season progresses, traders and analysts are watching China, where stock markets are tumbling. Shanghai’s main index on Monday slid 8.5%, which was the biggest fall since 2007.

It represents a worrisome development for crop prices.

“China promises to take steps to stabilize its stock market, but the global economic fears that last night’s collapse re-energized continue to weigh on the broader commodity and equity markets,” Arlan Suderman, senior market analyst at Water Street Solutions, said on his blog. “The broader commodity indices tried to stabilize earlier this morning, but then came under renewed selling once again. This is the biggest threat for grain and oilseed prices in the near-term in the absence of any real knowledge about the size of this year’s crops.”

What should farmers do? Roach offered a few suggestions.

“For growers that sold some of their new crop, we think that maintaining ownership into the spring makes a lot of sense, so you have to look at these kinds of prices and determine if you want to reattach yourself to these sales on into spring,” he said. “We think that with big demand—and we have the biggest demand we’ve seen in history both in the U.S. and the world— and hiccups in weather, if the funds are not properly adjusted, (can lead to price volatility). You may not see the $4.75 and $5 market, but you do have to be prepared that if we do go to that kind of price, you’re reattached to it. Otherwise, stay attached to your grain until spring."

Watch the closing discussion with Roach and fellow panelist Todd Van Dyke of Top Third Ag here:

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Spell Check

Stanley Sadler
Littlefield, TX
7/28/2015 09:50 AM

  Reattach,hold until spring. Gees he sounds like a farmer where is the risk management in those comments. My banker would have a heart attack if I told him I want to own everything until spring