A price rally going into harvest! Some producers are looking at above average yields while asking, “what is driving this market?” The trade negotiating of the past few years is being realized along with a few other fundamental factors.
What's driving prices higher?
We have all heard the saying “the cure for low prices is low prices.” When all the pieces of the puzzle start to come together, the markets gather steam and roll higher and many times a demand market leaves you looking for the driver.
Supply driven markets are easier to “see." We can see when the fields are not looking like they should, but demand builds slowly and quietly, making it much more difficult to point to one thing that makes the market move. Low prices, trade negotiations, supply issues in parts of the world, growing demand and the U.S. dollar backing off all lend to a rally in the grain markets and many other commodities as well. No one knows how long it will last, but one thing is for sure, the market sometimes overdoes it to the upside and the downside.
What do you do about it?
I hope you are enjoying the higher prices and taking full advantage. It certainly feels good to be managing call options bought on both past corn and bean sales. Some of those calls were bought in 2019 against bean sales that, earlier this year, felt like a price we would never approach again in this crop year. The market teaches lessons daily. Having assisted farmers with marketing for more than 20 years, I know they get tired of hearing me say, "when you least expect it, the market will surprise you, so just stay balanced."
There is no better time than the present to get actively engaged in your marketing plan. Some may say, "I do not have any beans left to sell, I started making sales too early!" Understandable. This market has risen a lot higher. What alternatives do you have if you are in this boat? A couple of things to consider, if you have run out of bullets on beans for the 2020 crop and you did not buy calls, you should be looking forward at other opportunities. November 2021 beans settled Friday at $9.76 per bushel, this may be far better than some of your sales on 2020 crop. It is easy to get going on a portion of next year’s bean and corn sales at these levels. Defend the sale with a Nov 2021 soybean call option or call spread. This will allow you to establish a minimum floor price and enable you to continue to reward a rally in the market. Those sales in 2019 for the 2020 crop looked outstanding until the last few days, but the nice part of having those Nov 2020 beans sold in the $9.70+ range since last year was they had a call spread that was attached to leave the upside open. Maintaining that flexibility in your marketing plan will keep you engaged and happy to see a market rally any time, even if you have run out of bushels to market.
How high is too high? No one knows. But for now, enjoy the ride! Wishing you a safe and bountiful harvest!