This spring is shaping up to be a historical one with commodity prices setting new contract highs seemingly every day. Every year has its own unique spin as producers head to the fields and embark on their mission to achieve a rewarding harvest come fall.

This year has been a testament to how quickly markets can change. The drought in South America sparked nearly a $5 rally in soybeans that closed at $17.15 on Monday. Wheat nearly doubled as the war in Ukraine choked off exports out of the Black Sea region. The corn market followed with wheat as Ukraine grain shipments came to a screeching halt, but then the March 31 acreage intentions report put the commodity on center stage with a shocking revelation that U.S. producers expect to plant nearly 2.5 million fewer acres than the trade was expecting to see.

Ukraine invasion impact

New crop corn charged past the spring crop insurance average price of $5.90 to achieve a $1.75 rally since the start of the Russian invasion, closing just shy of $7.50 on Monday. The unrest in Ukraine shows limited signs of a resolution as the country enters its critical spring planting season. USDA slashed current estimates for Ukraine 2021/22 exports from 33.5 MMT to 23.0 MMT with additional cuts expected; spring plantings in the country are expected to be down 20-50%.

The markets will continue to trade tightness in the balance sheets throughout the planting season as weather will become a focus, but don’t get caught without a plan.

Costly crop

This year U.S. producers will plant one of the most expensive crops they have ever grown. Fortunately, commodity prices have responded to provide profit opportunities. The corn market has been attempting to entice U.S. producers to plant more corn versus intentions from March by rallying new crop futures to the highest levels we have seen in history at this point in the season.

It is yet to be seen if producers are willing to make the switch with soybeans reluctant to give up ground as strong crush margins and renewed export interest have shown up in check the past two weeks. 

These are very exciting times, but we all know how quickly markets can change, and rarely are the circumstances within our control. Prices are unpredictable and can change before we have time to act. There are tools within the marketplace that can help take back control of the uncertainty.

Upside protection, utilizing call options, is warranted on sales when pricing your grain at profitable levels, all the while maintaining the opportunity for enhanced revenue if the market continues to move higher. The best position you can be in today is to lock in rewarding margins while knowing you are still increasing your revenue in an up-trending market.

New crop sales look attractive but can be challenging for the risk of unknown production until the crop progresses further into the growing season. A put option will protect your downside risk but allow a producer to retain complete control on pricing your grain later in the year.

I have never seen a market with as many bullish factors as the one we are currently in, but history would show that when prices correct it will be very difficult to market in a downward trend. A disciplined risk management strategy that provides downside price protection and flexibility to participate in market rallies is very well suited for the current uncertain environment.

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