December 13, 2022
In recent weeks, we have seen the soybean and soybean meal markets rally on production concerns for Argentina. These concerns will continue to drive the market over the coming weeks if they remain or get worse.
It is important to put things in perspective. Last year South America produced 180 mmt of soybeans for their total bean crop. Current estimates for this year’s crop, per the USDA, are at 217 mmt. That is a difference of 37 mmt, or 1.3 billion bushels MORE beans than last year.
We would need to see significant crop issues in Argentina to bring the total South American crop down. As of today, it sure looks like South America, as a whole, could have soybean supplies 1 billion bushels higher than last year.
Of course, crop estimates and market direction can change rapidly.
Even with the potential of a much bigger supply of beans in South America, we saw January bean futures rally $1.00 from the October lows. If you stored beans this fall, you have been rewarded -- so far. Are you selling any of those bushels? A dollar rally is significant, and you should consider rewarding the market. Call options allow you to come back in and stay in the market. If you sold beans at harvest, but bought call options, you too are being rewarded with this rally in beans. Look for opportunities to roll your calls higher and take some money off the table.
High prices cure high prices?
The biggest driver for corn right now is the lack of export demand. U.S. outstanding corn export sales are roughly 500 million bushels less than last year. This continues to paint a picture for a continued reduction in corn export totals from USDA unless we see demand improve.
What comes to mind here is the classic saying that “high prices cure high prices.” If you stored corn this fall, we have seen futures drop 40-50 cents from mid-October. If put options were still in place, then the drop in futures likely isn’t as bad as it would seem. However, it does show the importance of staying protected from lower markets. If you sold across the scale and bought call options, you still have value in your calls, and you have time on your side if we rally.
Again, the market continues to show us the value of using options in your marketing plan.
It’s a good time to get a marketing plan in place. While we know market direction can change fast, we must look at current estimates as a guide. Several private estimates have U.S. corn ending stocks potentially increasing to 1.8 to 1.9 billion bushels this next marketing year. That would be a sizeable increase from this past year.
Don’t underestimate how much the market could drop if we see ending stocks increase to 1.8 or 1.9 billion bushels. With higher input costs, can you afford to see this market move lower? The answer is obviously no. Having a marketing plan that uses options to manage risk is very important, and valuable to you. Options will help protect you from a lower market, but they will also help you take advantage of higher markets if we see things change rapidly.
Options have been a very valuable tool the past several years, and they will continue to be a valuable tool in 2023.
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