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Be ready to widen your crop sales window

The market doesn’t give us opportunities when we want them, so we have to be ready when they happen.

The most profitable pricing opportunity we have had so far in corn this year was on New Year’s Day, Jan. 1st

This is a fairly rare occurrence when prices peak at the start of the year only to slowly erode as the year goes on. I had to go back to 1998 to find a year that looked similar to this one. 

In 1998 you would have been a rock star had you sold your entire crop in January. 

Now for the bad news: prices took four years to recover back to that same level.  Granted, there are still four and a half months left to go in 2020 and so the door is not yet shut. But the market is increasingly pessimistic as the weather outlook continues to improve. Furthermore, gasoline stocks are huge and ethanol margins still struggle to stay positive. The longer the COVID-19 pandemic continues, the longer it will weigh like an anchor holding down demand. 

All of this means that if we maintain our current trajectory, ending stocks are going to work their way back closer to 3 billion bushels for corn and 500-plus million bushels for beans.

Widen your window

One thing we can learn from this is the need to widen our window of time for making sales and locking in hedges. The use of risk management tools allows us the chance to get downside protection on the year ahead, not just when we have the crop in the ground. It allows the farmer to be proactive versus reactive. 

We never know when the market is going to give us a rally. The market doesn’t give us opportunities when we want them, so we have to be ready when they happen. 

The benefit of hindsight shows us that both the summer and fall rallies of 2019 would have been a good time to lock in hedges for 2020. If you were given an additional six months for improved sales opportunities, why would you turn that down?       

A common mistake I often see is producers wanting to kick the can down the road, as their unsold inventory gets bigger and bigger, increasing their risk. This increases interest costs, storage costs, and allows for missed opportunity costs. 

An example of an opportunity cost is missing out on early input payment discounts because your money is still in the bin.

USDA report looms

USDA will release this month’s Supply and Demand report Wednesday at 11 a.m. CST. The average trade yield guess for corn is 180.4 and 51.3 for soybeans. Based on the average trade, corn and bean stocks keep getting bigger, reaching roughly 2.8 billion for corn and 525 million for beans. 

Many are looking for ethanol crush and export forecast to be trimmed. Despite the dollar getting weaker, other countries continue to remain competitive. Brazil is profitable and will plant all that they reasonably can as they look to increase acres.  

The market has already absorbed this information and the surprise would be to the high or low end of these guesstimates.

Reassess price targets

If the average trade guess comes true this week, it is important to review your price targets. Ask yourself what will happen if ending stocks continue to build and how long you can go until you need to make a sale. Have price objectives set so that you can react quickly if the market gives you the chance. 

If USDA does not increase yield as the trade expects, this could give us a short rally to make additional sales. Additionally, think beyond this year and what your marketing strategies are for next year.

The market may yet surprise us and so we need to be ready.

Reach Matthew Kruse at matthewdk@commstock.com or call 712-227-1110.
 
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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