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Ag Marketing IQ: The question is whether to move now or hope fundamental catalyst spurs a rally.

Naomi Blohm, senior market adviser

February 15, 2024

6 Min Read
corn in semi trailer
Getty Images/iStockPhoto

Tis the season. Those with crops in the bin are deciding if they should sell it or keep storing it in hopes of a price rally in grain futures.

What’s happened

First notice day for March 2024 grain futures is Thursday, Feb. 29. That means anyone who is long March grain contracts in the futures market needs to exit those long positions by the close of business on Wednesday, Feb. 28, or be at risk of physical delivery.

It also means that farmers who were using basis contracts (based off the March 2024 futures contracts) for cash marketing, must decide very soon to either price out the contract or roll it out to May 2024 futures. The question really boils down to, “Is there any bullish news out there?”

Corn and soybean futures have been in a steady downtrend ever since early December, ignoring “seasonal tendencies” for a market rally (often times seen in early winter). Traders are focusing instead on hefty crop carryout amounts, with fund traders acting as relentless sellers.

The next few weeks of trading will likely prove to be volatile with the USDA Outlook Forum likely adding to the already negative fundamental outlook tone. In addition, there is a three-day holiday weekend with markets closed on Monday, Feb. 19, 2024, in observance of President’s Day. Also, March grain option expiration is approaching on Friday, Feb. 23, and first notice day for March grain futures is at month end.

I’ll be curt, for grain prices to resume an uptrend, we need a friendly fundamental catalyst to occur to get the funds to exit their near record short positions. We need the U.S. Dollar to drop, a friendly USDA Outlook Forum message, and weather issues in Brazil to disturb second crop corn production. Still wondering what to do? Let’s take it a step further and look deeper at the notion of price or roll.

From a marketing perspective

Price. If you are of the opinion that grain prices will continue to trade sideways to lower, then it likely makes sense to price out the contract. This means that you will call the elevator, take the current March 2024 futures price and apply the basis already locked in. Boom. The decision is made, and the grain is priced.

For many, the price is not glamorous. And for some, you may already be thinking, “But what if prices do actually rally in the coming weeks!?” You may then potentially feel like you were “foolish” for pricing “too soon.”

Fear not. This is where it might make sense for you to re-own on paper with a call option. For example, if you purchase a July 2024 call option, it will expire on June 21, 2024. You pay a one-time option price premium (plus commission and fees), and no margin calls. You will have nearly four months to know if prices should rally due to a potential drought in Brazil, a delay in spring planting in the United States, or a flash drought in the United States in early summer.

If the futures market rallies, you have the ability to take part in the rally. If prices do not rally, the most you can lose is the expense(s) paid for the call option. For some, this may be a less expensive option than if you consider the cost of storage for four months with interest payments.

Roll. If you are of the opinion that prices will rally in the coming weeks, then consider rolling your basis contract. Most likely you will roll to the May contract, pay the elevator a fee to roll, plus the spread difference between the March and May contract. If the market rallies, you will capture the futures price gain. If prices do NOT rally, then you are at risk of further price decline.

When looking at beans, the spread is now narrow enough at roughly 5 cents that rolling may be an attractive option. On basis contracts, a roll will subtract from one’s basis if the market is in a carry or add to it if the market is in an inverse.

The soybean market is currently in a carry which would subtract the 5 cents (plus fees) from the contract basis if one should decide to roll pricing from the March to May futures. Corn futures have ‘more’ carry and are roughly in the 13-cent range on the March to May spread.

Corn is where the debate really comes into play on the roll or price debate. Some producers suggest that they are not overly thrilled with current old crop price levels and would like to wait for better days, yet keep in mind that 13 cents plus fees is a steep reduction in price to continue to be open to market risk and opportunity. If you go this route, consider managing your price risk with buying an April 2024 corn put option (which expires on March 22, 2024) or a May 2024 corn put option (expires April 26, 2024) and will help give you a price floor just in case the USDA gives us more bearish reports, the funds continue to hold and/or build short positions, or the weather is perfect for corn growing in Brazil.

Prepare yourself

Time to get your head out of the sand. We feel it’s increasingly important to have a strategy moving forward with your grain. The trend is lower on both commodities, and it is getting increasingly expensive to hold crops.

Be ready for anything. The funds do hold a hefty net short position and current market perception continues to be negative. However, a glimmer of friendly news could spur short covering and a significant price corrective rally. However, a lack of friendly news will likely keep corn and soybean prices in a sideways to lower pattern for the short term.

Many price scenarios can unfold in the coming days. Manage your risk. Be ready for any surprise. Sit down and do the math and decide which scenario, price or roll, is best for your farm business.

If you have any questions, free feel to give me a call.

Reach Naomi Blohm at 800-334-9779, on X (previously Twitter): @naomiblohm, and at [email protected].

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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