October 21, 2022
Roger, I expect higher prices into the winter and spring, but I feel like a fool to turn down these high harvest time prices. What do you think?
Given that 2012 was the only other year we had harvest time prices as high as we have this year and prices tanked in 2013, you are well justified to be concerned about not grabbing the current prices.
The major difference between this year and 2012 is that the price rally in 2012 was a mostly supply rally, while the 2022 rally is mostly a demand rally.
Supply rallies are short-lived because growing seasons are short. A month of bad weather during July for corn or August for soybeans can sharply reduce production and spark prices. Supply rallies are like a PT boat; very powerful for its size, can zip and turn on dime and be blown out of the water in a heartbeat.
Demand rallies are slow to develop and slow to end. They are like a battleship; it takes a lot of power to get it moving, but once it is moving, it is hard to stop and it takes a lot of bearish news to end it -- but it will end someday.
Corn and bean prices are this high for several very good reasons, and the seasonal trend is up. But how does one turn down $200 to $300 per acre net profit here in the fall? Afterall, even comparatively low fall prices did decline sharply into the spring of 2019 and 2020.
Why not eat your cake and keep it too?
Sell your production now, get that $200 to $300 profit per acre in your pocket now, stop interest payments, and eliminate storage risk – and if prices do decline into the winter and spring, you will be a genius!
If prices go way up this winter or next spring, what do you think prices will do after that? Yep, corn and bean prices will crash and burn.
December corn lost $2.14 in nine weeks this past summer. November beans lost $2.96 in six weeks this past June and July. A person could have bought December corn puts for 30 cents a bushel in May and sold for $1.50 in July. Likewise, one could have spent 50 cents a bushel for November soybean puts in June and sold for $2.30 in July.
Consider your financial risk-bearing ability, your nerves, your spouse and kids, your banker, and the probability of higher prices into the winter and spring. And then ask yourself, “Since I know prices will come down if they go substantially higher from here, and I know I can buy puts risking very little money compared to my current risk with corn near $7 and beans near $14, why take the risk?”
Most farmers would answer that question, “I never did that before” or “I don’t understand how puts work.”
There are hundreds of commodity futures brokers and market advisors who will educate you and guide you through the process. Just keep asking until you find one. You can start by reading our simplified version of puts.
Marketing decisions need to include risk management. Selling now eliminates down side risk, but if you learn to use puts, selling now does not close the door on a higher net price for your 2022 crops.
No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
Founder, Wright on the Market
Grain marketing consultant Roger Wright has conducted hundreds of seminars and shared his expertise on weekly farm radio programs as part of his goal to teach marketing concepts to agricultural producers. He was raised on a dairy/hog farm in West Central Ohio and spent four years in the Marine Corps after achieving a Bachelor of Science degree in ag education. He previously taught college-level farm management courses and served as a branch manager for Heinold Commodities and Securities.
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