An Opportunity for Feed Buyers?
What happened….
Corn and soymeal prices have weakened over the last several weeks. New crop December corn futures recently peaked over $4.96 before losing 30 cents in recent weeks. Meal futures have lost over $40 per ton (10.5%) since peaking in early May. Considering it is mid-June, critical weather for the growing season for both commodities lies ahead. The bottom line is that current prices have receded prior to critical weather events, providing buying opportunities.
Why this is important….
Weather is by far the most dominant factor determining crop size. For many producers, this year’s spring planting was less than ideal. Early crop ratings near 75% good to excellent for both corn and soybeans is encouraging for producers. However, it is too early in the growing season to draw a conclusion as to what crops will be like by fall. Additionally, there were many problems with this year’s planting due to wet conditions which lead to delays, a lower stand count, and uneven appearance to fields. The maturity window from field to field could vary significantly by fall due to the challenges faced by many trying to find fields that were dry enough to plant. For some, this will be a year with prevent plant indemnity insurance payments.
In a year where spring is less than ideal, history suggests summer weather becomes more paramount with little room error. Last year, dry weather was a concern, however, the crop was in early. Several timely rains (despite continued net drying) helped to produce big inventories. A big concern for this summer are shallow-rooted corn plants, which implies that timely rains are even more critical. The National Oceanic and Atmospheric Administration is suggesting there is a 65% chance that the current El Nino weather pattern will switch to La Nina by July. La Nina is typically accompanied by warmer and drier conditions for the Midwest.
What can you do about it?
End users may have already taken advantage of the recent weakness in corn and beans to lock in longer-term needs by contracting ahead. Or, at a minimum, shifted risk using marketing tools such futures or call options to establish a price ceiling. Continue to be vigilant in making those pricing decisions. Watch for signs of a price turnaround or a weather forecast that might suggest adversity for crop conditions.
Consider purchasing based on value. Value could be termed as being able to buy for less than it costs to produce a product. It is difficult to know when a low price is in place. Buying at low prices before adverse weather events is good common sense. Waiting for a “low” can turn out to be costly.
Now is the time to have conversations with your advisor to help you implement strategy. Take control while you can.
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.
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 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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Bryan Doherty