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Ag Marketing IQ: Marketing decisions should be known and in place before volatility occurs.

Brian Basting, Commodity Research Analyst

June 13, 2023

3 Min Read
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Price volatility in new-crop corn has been relatively low of late, although there is still considerable uncertainty about U.S. corn production potential. The USDA report Friday was rather unexciting.

The carryout for the U.S. 2022-23 corn crop increased 35 million bushels from last month to 1.452 billion bushels due to the expected reduction of exports and imports. These changes carried through to the 2023-24 bottom line with ending stocks increasing to 2.257 bbu, 20 mbu more than the trade average. South American changes were mostly as expected with Brazil up 1 and Argentina down 2. Old crop export competition increased with the net being a near 2 million metric ton increase from last month, with the bulk of the increase coming from Ukraine.

Now that the report is over, we are back to trading weather. Markets rallied Sunday night into Monday as many areas of the U.S. continue to develop drought-like conditions. In Monday afternoon’s Crop Conditions report, corn dropped 3 points to 61% with progress steadily increasing. Markets rallied a few cents overnight in response.

These markets are unpredictable. An effective risk management plan is extremely difficult, if not impossible, to execute if it is not carefully constructed prior to an unexpected increase in market volatility. Effectively, every decision made should be known well before any market volatility takes place.

The official start to summer is less than two weeks away, yet price volatility in new-crop corn has been more subdued of late (see chart of December corn futures below). There is still considerable uncertainty, however, about U.S. corn production potential and recent history shows how quickly price action can change. For example, December 2022 corn futures plummeted more than $1.85 from mid-June into late-July. A similar pattern developed in 2016, when December 2016 futures declined more than $1.30 from mid-June into late August.

At the other end of the spectrum, however, there have been times when the market surged from mid-June forward. For example, December 2015 corn futures rallied nearly $0.90 from mid-June into mid-July. And in the drought year of 2012, December futures climbed $3.12 from mid-June to early August.

Stepping back and looking at the chart above, I realize how challenging it could be for a producer without a risk management plan in place to deal with this type of price volatility. One minute, the market is sliding lower (moving higher) and a bearish (bullish) theme is dominant; a few minutes later, however, psychology has—at least temporarily—shifted the market to a bullish (bearish) stance. The key lesson to take from this is that market change happens and can happen very fast.

In this type of environment, an effective risk management plan is extremely difficult, if not impossible, to execute if it is not carefully constructed prior to an unexpected increase in market volatility. Effectively, every decision made should be known well before any market volatility takes place. As a student of the market, you understand that the reaction to increased price volatility should be calm and systematic. Partner with a trusted risk management advisor to implement a strategy for your operation.

Contact Advance Trading at (800) 747-9021 or go to www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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Weather

About the Author(s)

Brian Basting

Commodity Research Analyst, Advance Trading, Inc.

Brian Basting has been a Commodity Research Analyst for Advance Trading since September 1993. He is a market analyst for U.S. Farm Report and This Week in Agribusiness and a 4-H Hall of Fame Award Recipient.

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