Chip Flory: The Other Side of the Market Top

Corn and soybean supplies will remain tight enough the next 15 months to make it difficult to recognize the high when it is made.
Corn and soybean supplies will remain tight enough the next 15 months to make it difficult to recognize the high when it is made.
(Farm Journal)

Trade in the days after USDA’s May 12 reports revealed the volatility of which market-watchers have warned. New-crop corn and soybean balance sheets revealed basically what was expected: Supplies will remain tight for at least the next 15 months. 

MARKET WARNING SIGNS 

But futures – and especially corn futures – flashed a preview of what to expect in the months ahead. Prices do not go straight up and long-term rallies are littered with small, medium and even large downside corrections. 

The failure to go up on “bullish” news is often the warning traders and growers watch for to trigger increased selling.

The “bullish” news for the corn market wasn’t in USDA’s numbers. It was in Safrinha cornfields in Brazil and in the daily and weekly export sales reports. 

December 2021 corn futures had already added nearly $3 per bushel and China was aggressively booking new-crop corn in early May. That’s when futures rallied nearly 80¢ in four days only to give back the entire rally in the next four days.

Nimble traders love that kind of price action; corn growers don’t. Risk management issues created by hyper-volatility make decision making difficult when the need for a timely decision is amplified.

FOCUS ON PROFIT

When faced with market volatility, you must pay less attention to price and trend and focus on margin and profit. Margins available on 2021 crop corn and soybeans in early May demanded sales even as the rally accelerated. Margins available on those crops at mid-May demanded sales even as the markets saw the biggest downside corrections since the rallies started in August 2020.

Focusing on margins and profits can help manage the emotional side of making sales in these dynamic markets. Specifically, I’m talking about limiting the “fear of missing out” – FOMO. 

If new-crop cash corn bids drop a quarter from the $6.25 high, it might be difficult to make a sale. But, if you make a sale at $6 because it represents a 50% return on investment, a $400-per-acre profit and a paid-off piece of equipment, it may be easier to make the sale!

SELL FOR THE RIGHT REASONS

Make a sale for the right reasons, rather than not make a sale because it might not be the high.

Corn and soybean supplies will remain tight enough the next 15 months to make it difficult to recognize the high when it is made. The trade on the other side of the high will be volatile enough to tease you that the rally could restart with the next stop at new all-time high grain prices.

In the meantime, focus on profit. Use these opportunities to help strengthen your operation for the years ahead. 


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