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The biggest USDA report of the year is upon us

How to scenario plan for whatever information and price reaction occurs.

With hours to go until the January 10 USDA WASDE report, many are greatly anticipating what information might be revealed. Depending on report results you may be filled with joy, or ready to throw tomatoes at your computer screen.

As history tells us, it is nearly impossible to outguess any USDA report, let alone the January report. Historically, the January report is perceived as “the big one”. In many prior years, the wake of this report has left the grain market either limit up or limit down in terms of price action. So what to do? Calmly and rationally sit back in your chair and let’s scenario plan.

Scenario plan

Being able to scenario plan means you already have a marketing strategy set that will let you sit back and tune out the drama of the day when the report is released. Right now you should be thinking of old and new crop sales; what percentage of each have you sold for your farm? Be aware of the weighted average price of all of those sales. With the improved basis for most locations across the Midwest, many will likely be able to make profitable sales ahead of Friday’s report. If the report is surprisingly bullish, consider having a re-ownership plan set in place with futures or call options. That way you will be able to participate in a rally and not feel frustrated for “selling too soon”. On the flipside, if you are not interested in making cash sales at this time (for whatever reason), be mindful of your unpriced bushels and consider a put option strategy to offer a price floor.

Place target cash orders at your elevator

Sometimes on USDA report days, the market will have a knee jerk bullish reaction and trade 20 cents higher, only to finish 20 cents lower on the day.  If you have a target cash order in place at the elevator for a surprise rally you will be the beneficiary of that quick price move! There is an old saying in this industry that producers should “price early and price often.” I agree.  In most years your better cash sales occur in the early months of the calendar year. Why these months? Seasonally, in January and early February the marketplace is faced with heaps of uncertainty, and that uncertainty can drive prices higher. Then in mid to late February the grain markets start to get a better feel for how many acres of corn and soybeans will be planted in the spring in the United States, and trade will ASSUME trendline yield until proven otherwise. Prices then have a tendency to slide lower through spring. Do be mindful of those early potential pricing opportunities! They usually don’t stick around for too long.

Relying on outlook isn’t the best marketing plan

Tempting as it may be to point to the strong cash basis in the Midwest as a means to “know” that the January 10 report “ought” to be bullish. And that the USDA “has” to cut both yield and harvested acres in the January report because “everybody and their brother knows the crop isn’t out there” (yes, strong sarcasm)…remember, the USDA report can be filled with myriads of twists and turns. We have seen many a report that on paper is bullish, and the market responds with negative price action.  And we have seen bearish reports on paper, with the market responding with higher prices by the end of day.  Yes, while we do need to pay attention to supply and demand reports as it drives market perception as to whether or not ending stocks are getting smaller or larger. Relying solely on these reports is not how you make a great marketing plan.

This report sets the tone for the next 6 months

Be mindful, this report has the potential to set the price tone for 2020. There will likely be a tale of two crops as we head into 2020. The cash market is suggesting tight supplies of old crop corn throughout the Midwest due to poor growing conditions in 2019. Yet, trade is already pointing at a potential reality of increased planted corn and soybean acres in the United States this spring, which could keep a price rally in check. Be vigilant of pricing opportunities. Get your cash orders in place (and then don’t cancel them)! Let’s make 2020 one of your best years yet!

Reach Naomi Blohm: 800-334-9779 and naomi@totalfarmmarketing.com

 

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation

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