Q: The popular adage for years has been that large crops have long tails, meaning they will grind lower into winter. But in the past few years, corn and soybeans have stabilized or rallied post harvest in the face of larger crops. Can you shed some light on why this has changed? In addition, “capturing carry” seems to be a popular catchphrase this year. How best do producers do that?
South America Changes The Marketing Scene
Don Roose, President, U.S. Commodities
Typically, short crops have a long tail. Spring wheat price trends in the past year highlight this. Rationing occurred at higher prices, and alternative sellers replaced the short crop in the U.S. Prices moved lower to recapture the demand, which is not easy. Thus, short crops have a spike, a top and a lower price move.
Trading cycles and seasonals have altered gradually as South America’s market share and production expands. Its three major soybean producers—Brazil, Argentina and Paraguay—will export 2.82 billion bushels of the crop this year, while the U.S. will export 2.23 billion bushels.
In corn, Brazil and Argentina alone will export 2.46 billion bushels, while the U.S. will export 1.85 billion bushels. South American producers begin to plant their crop as U.S. farmers harvest, and the market often adds risk premium.
Large crops typically have lower prices, wide basis and wide carries at harvest. The marketing advantage is to lock in the wide carry and allow seasonal upside strength. This is a year in which option window contracts are ideal. Buy puts and sell puts for downside insurance, and sell calls for upside targets. Contact Don: firstname.lastname@example.org
Fill Grain Bins, Then Snag Revenue
Matt Bennett, Owner, Bennett Consulting
Strong demand, especially for soybeans, has been a big reason for harvest and post-harvest rallies in recent years. Even though we’ve seen large crops every year since 2012, prices have refrained from plummeting, contrary to the market assumptions. I look for a blasé market into the end of 2017.
But while demand continues to impress, supply is plenty big enough to negate it. Supply is adequate in the U.S. and the world, making it tough to get a rally even with record demand.
Capturing carry in the market is quite important in a year when we see full carry. With December through July at 30¢ and November through July at 32¢, producers who are faced with razor-thin margins need to manufacture revenue in any way they possibly can.
If I had the storage, I’d fill every bin with both corn and soybeans, sell the July contract as a true hedge while carry is so impressive and look for opportunities to take advantage of any basis improvements. Typically, basis will improve from harvest to summertime. In a year like this, resulting profit could be the only way some producers can end up in the black. Contact Matt: email@example.com