Planting progress sends prices lower

What happened

Despite record rainfall in parts of the Midwest and continuous pesky rains nearly day after day, planting progress continues to run ahead of the five-year schedule for both corn and soybeans.

After the Memorial Day weekend, prices started with a bang on Monday night as futures moved higher, anticipating planting delays to continue being problematic. By Tuesday’s close (May 28), Chicago Board of Trade futures were lower. When the USDA Crop Progress report numbers were released that day at 3 p.m. CT, the planting pace was above the five-year average for both corn and soybeans, something many were not expecting.

By Monday, June 3, despite what appeared again to be a lot of rain, figures as of Sunday indicated corn was 91% planted versus a five-year average of 89%. Soybeans, at 78% planted, were also above the five-year average of 73%.

As of this writing, corn and soybean futures have finished lower six consecutive sessions. Weather premium for a late planted crop has been removed from prices.

Why this is important

Advances in farm equipment, better trained farmers with a network of logistical support by their vendors/suppliers, and a work ethic second to none all suggest that when planting conditions are ready, producers will work hard to make things happen. The market anticipates this ramp-up in effort and expects progress. If there is an adequate supply from the previous year, prices are vulnerable to “tipping over” in a quick sell-off. It seems the higher the price, the faster the fall. What likely has disappointed many is the idea that the market drop is ahead of itself, meaning prices dropped too quickly in anticipation of continued good progress and growing conditions.

If there is a lesson, it is that planting progress can make significant headway in a short period of time. This may be particularly true as the season wears on and farmers are able (or required) to work longer hours, and in some cases nearly around the clock. If progress advances, weather premium disappears and so do selling opportunities. It may be beneficial to view price increases (due to planting delays) to be nothing more than a marketing opportunity that could be short-lived.

Hindsight makes it easy to know what you should have done. The reality is that, over the last 10 years, there have been planting delays – some significant. Yet yield numbers suggest that, by harvest, these delays mean little. Is this a function of good luck during the growing season, an extended fall without frost, or something else? Each year is different, and the bet on smaller crops is not the same bet as it was 15 or 30 years ago.

What can you do?

Be vigilant for opportunities and act. Expect that planting delays are selling opportunities rather than the start of something bigger for price advances. Purchasing put options is a good way to shift risk by establishing a price floor while leaving the top side open for cash prices to advance. Or, if wanting to forward contract into a rally, cover forward sales through the purchase of call options or bull call spread. Discuss these strategies with your advisor, and act on a strategy that works best for you and your operation.

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 involves 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 adviser 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.