May 9, 2023
Silly season gears up as planters roll steadily across most of the U.S.
Yesterday’s crop progress showed corn planting at a sizzling pace for much of the corn belt, while a few northern states trail the average. As we enter key production timeframe for U.S. crops, we have to remember that supply is one piece of the ‘marketing puzzle.’ Bulls continue to hang their hat on uncertainty in the Black Sea and that these crops are far from the finish line. While bears point to stiff export competition, dwindling demand and are betting on the U.S. farmer to do what they do well, raise as many bushels as they can.
At the end of this week, we’ve got the May WASDE report. This report can be a market mover. Traders will be watching demand and production adjustments to our key export competitors. This is also the first official look at the USDA’s balance sheet for new crop grains. Many analysts anticipate the U.S. will print a 2-billion-bushel corn carryout, the biggest, most comfy supply situation we’ve seen in years and certainly would be viewed as burdensome if realized.
Funds seem to be on board with a more comfortable U.S. grain supply situation as they are no longer scared to short your Ag markets, holding their largest short position in corn since August 2020. Funds have been reluctant to build any sizeable, short position over the past two years, but things are changing, and farmers need to pay close attention to these changes. The funds may not be right just quite yet, but they could be, and you don’t want to be the one holding the bag at the end of the day.
Extended bull markets like we’ve seen over the past two years can cause farmers to slow down their marketing and when the bull market fades, you can quickly fall behind, not just holding out hope for pricing last year’s crop but marketing the upcoming crop and getting started on 2024. Risk Management tools enable you to pass price risk off to someone else, a speculator usually, if you choose to. You can do just this, but that choice is yours to make.
What to do now
Focus on your plan and use the tools that give you market control and flexibility.
Right now, instead of feeding off the market noise and trying to figure out what future events will happen and how they will impact your market, you should be learning how to use tools that help you defend equity and embrace market volatility before it happens.
When we look at the cost of ‘option-izing’ your marketing decisions and defending your balance sheet, the market surprisingly isn’t pricing in much volatility, especially when we take into consideration how unpredictable the rest of the marketing year could actually be. This makes managing price risk and market opportunity really attractive and easy to do. Farmers should be taking advantage of this opportunity.
Now is definitely not a time to take a cavalier approach to protecting equity and profit opportunity. As I shared in my last article, the U.S. carryout situation has the potential to move either direction over the coming months and only future events will dictate which way that pendulum swings. Be careful betting your farm’s finances blindly on one specific outcome.
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