August 29, 2023
Commodity prices had quite the journey during the summer of '23, reaching profitable levels on multiple occasions. Early fears of drought and unfavorable condition ratings propelled prices to surge, even in the face of uncertain demand. Producers were presented with numerous golden opportunities to make significant cash sales or to hedge at profitable levels for their operations.
However, two types of producers emerged. Some seized the staring prices that aligned with their margins, ensuring profitability for their operations. Others observed the market moving in their desired direction but chose to wait for even better prices – the prices they felt they deserved.
The flipside of the summer of '23 revealed the fleeting nature of futures trading and the rapid turnarounds producers endured. This was particularly evident on the afternoon of June 20 when the lowest crop ratings since 2012 were released. This occurred amid one of the most notable weather-induced market upswings seen in a long time. Dec Corn had already traded up to $6.29 in the days prior and seemed to be taking a breather. During the night session, futures inched above $6.00 once more before plummeting by $1.10, concluding the month in a freefall. This left the "wait and see" approach with more than just sunburn.
The lesson learned is to sell when you can, not when you must. Embrace price rallies, especially when the market offers levels that are guaranteed to generate profit. Summer of '23 was akin to Sybil, displaying various personalities – from optimism to chaos, tranquility to hysteria, and beauty to hideousness. December corn seemed destined for $7.00, only to drop to $4.81 a few trading sessions later. Remember, no one sells at the peak.
Sell when you can
Defend what the market presents. Never assume that alignment of factors guarantees your "dream sale" at higher prices. Those who missed their chance in June suddenly faced the possibility of selling at a painful price. Always remember, sell into "new highs," not "new lows." It's a straightforward strategy rooted in discipline and devoid of emotion. Emotional trades seldom prove wise and often lead to regrets.
Remember, some had another opportunity to catch up on missed sales, thanks to the Black Sea rally in mid-July. This rally offered a chance to acquire December Corn at $5.68, a mere seven trading sessions after dismal levels of $4.81. Sell when you can – and you could – if you weren't waiting for alluring sales above $6.00 and beyond.
Bear in mind, this rally stemmed from concerns that 10% of global corn supply could be disrupted due to a conflict halfway around the world. It's hardly a dependable or time-tested bullish scenario; more of a fund-driven surge that caught most off-guard. And, once again, seven sessions later, prices languished below $5.00.
Establish price floor
If you can't bring yourself to make a cash sale at favorable levels, at least establish a floor with a put option. Having that put in place when the market dips, helps you refrain from making rash, poorly timed sales at new lows. If you're unwilling to act, consider buying a put. The upside? The possibility of higher prices remains open.
Remember, hedging or selling cash doesn't imply becoming bearish or calling a top; it's about securing revenue. It's a pragmatic choice, not an emotional one. Pay the premium with the hope of not needing it. Why? Because you want to have the grain at hand for selling when you decide.
The summer of '23 was a spectacle of charts. We witnessed support faltering and resistance being breached. Yet, "charts" lack opinions; they're indifferent to who is long or short. Charts merely reflect the most crucial element—reality.
Consider this: wouldn't you prefer to debate USDA or Crop Tour results with a hedge in place rather than engage in an argument without price protection?
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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