Despite USDA yield bump in the latest report this week, soybeans rebounded Friday. However, veteran market analysts are warning farmers about the amount of price risk still at play with current commodity prices.
Mark Gold of StoneX Group appeared on U.S. Farm Report this weekend, and his temperature of the market was colder than it has been in the past. A crisis was averted in the short-term of a possible rail strike, the new potential strike date is December 2, 2022. Gold says between chances of a strike, along with more grain that what USDA forecasted last month, he wants farmers to take a hard look at their price risk.
“I believe that there’s going to be a lot of grain out here,” says Gold. “I believe farmers are going to have to move a lot of grain, a potential rail strike won’t help it. Farmers have been asking me for the past two to three weeks, ‘What do we do with grain in the bin, on corn and beans?’ And I just ask them, ‘What’s your basis?’ When they tell me it’s 75 cents to $1.25 over on corn, I have no idea why they’re storing grain, because it doesn’t pay to carry it.”
Soybean basis is a similar story across the Midwest. Basis in places is 50 cents to 75 cents over the board price, a clear sign for Gold.
“It’s the fear of missing out, or FOMO , that’s keeping guys from selling grain,” says Gold. “Can basis go higher? I suppose it can. But I don’t see it going a whole lot higher, no matter what happens. And if some of these things do hit the market, this basis can fall apart in a hurry. And the problem is, once this thing starts to roll, it’s going to move faster than the American farmer is going to move on it.”
Considering how much risk is in the market, Gold has one message for farmers.
“If you have grain in the bin, sell it, reown it with a call option,” says Gold. “If for some reason you’re still hesitant to sell it, particularly on new crop, you need to have some puts underneath, because this thing could get ugly. Again, I never predict prices, I look at risk. And to me the risk is certainly out there.”
Brian Splitt of AgMarket.net also sees potential resistance in the market, espeically considering the impressive ride futures prices have been on the past few months.
“I think the problem here that we have to realize is that we had a bullish September WASDE report, we had a bullish quarterly stock report at the end of September, we had a bullish October WASDE report, and the market got tired,” says Splitt. “We really just couldn’t get through $7 on the futures side. And so I think you have to really wonder what else is there to get the market to push through there right now?”
Splitt says as the calendar inches closer to the end of the year, there are some things farmers need to watch from a marketing standpoint.
“As we approach year end, the fund manager may decide to lighten up, they’ve been long corn for quite some time, they have not seen any new highs being made recently. And they may let this market come back down retrace some of this rally that we had from the July low to the October high, which is the $6.35 area would be about halfway into that rally,” he adds. “You’ve got a gap at $6.31. So, these are going to be some potential targets. And then we’ll see what the fund manager wants to do as we approach the January final production numbers, but we’re not going to get any new data from the USDA, likely in the December WASDE report. So this is what we’re going to work with for now for about the next two months.”
