Analyst: It’s all about weather

What happened

Three major reports are behind the grain markets: the quarterly Grain Stocks and the annual Acreage reports, released June 28; and July WASDE (World Agriculture Supply and Demand Estimates), out July 12. The Grain Stocks and Acreage reports were considered negative for corn and soybeans. The July WASDE had a somewhat favorable tone for corn, as well as a negative tone for soybeans and wheat. All are old news.

The market now turns its attention to weather. Weather is the variable that can affect supply more than anything else and is the most dominant factor in ultimately determining price.

Why this is important

By early July the market pays key attention to forecasts for midsummer’s temperatures and rainfall. This year most forecasts have been conducive to crop production. The most recent six- to 10-day outlooks appear especially favorable. The Midwest is expected to receive normal rainfall and average to below-normal temperatures. For corn pollination, there couldn’t be a better outlook.

Yet the corn and soybean crops are not made solely on July’s weather. Timely rains must occur in late July and August to fill kernels and pods.

In the very short term, new contract low prices have been established, likely due to favorable weather forecasts. The signal to end users, at least for now, is to buy only as needed.

What can you do?

If you’re a buyer, continue to be patient, and buy as needed in the near term. Prices are always dynamic and can move for no apparent reason. Be prepared to change gears quickly. Prices are trading at their lowest level in four years and below the cost of production for many producers.

The bottom line is that the market offers great value for buyers. At some point, inaction could be costly. If the market signals a low may be close, then consider becoming a more aggressive buyer.

From the producer’s perspective, in a low-price year such as the one farmers face, the idea of selling cash at or below the cost of production is challenging. However, hedging with futures or purchasing puts or fences (buying a put and selling a call) may have merit. These strategies can protect prices and do not require delivery. Most contracts are viable, meaning they have enough open interest and volume to be of use.

Elements of risk and cost need to be understood before entering any position. Discuss risk and expenses with your adviser before entering a position.

Find what works for you

Work with a professional to find the strategy or strategies best suited for your operation. Communicating is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.

Editor's Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

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. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. 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 the 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.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.