Too Early to Market 2025 Crops?
What happened….
There is an old saying in trading that “bull markets have long tails.” Meaning, after prices peak, they gradually move lower over an extended period of time. This may be especially true in commodities where high prices tend to cure high prices through lower demand and increased production.
In 2020, the corn market began a rally predicated on improving demand and tightening world inventories. A smaller 2019 crop, due to a cold wet spring and late planting, coupled with light test weight for corn at harvest, set the stage for a rally. A drought in Brazil followed and shorted the soybean crop, sending soybean prices higher. This was followed by a strong jump in energy prices, due to tight supplies and heightened uncertainty in early 2022 when Russia invaded Ukraine. Traders were on the offensive and end users were aggressive buyers, making sure they had inventories locked up. By late spring 2022, volatility was high and most row crop prices were peaking. The start of a longer-term price decline was developing. History tends to repeat itself. Over the last couple years, prices for corn, soybeans, and wheat, while often volatile, were on a steady decline.
Why is this important…
The market responded to high prices by producing more, and worldwide production increased. Perceptively, end users and speculators recognized the increasing supply, which is now ample. Managed money had built into record-short positions, as noted in the Commodity Futures Trading Commission Weekly Commitment of Traders report. In this environment of increasing supplies, demand (while still strong) shifts a buyer’s approach. Once willing to pay higher prices to ensure incoming product, buying moves to an as-needed basis. This is called just-in-time inventories. A likely contributing factor to this buying approach over the past year was a sharp rise in interest rates. For more than a couple decades, interest rates were low enough that the cost of holding inventory was not a significant factor. As of late, the mindset has changed. Why buy in advance and store (or pay for storage) if the producer can shoulder that burden of holding crops in their bins?
World demand for grains and oilseeds is on the rise. A reset to low prices is providing benefit to end users. Yet, there is little reason to expect buyers to move away from just-in-time inventories in the months ahead. It will likely take a weather event to push prices significantly higher and create an environment where end users and speculators are willing to chase prices. For the foreseeable future, price rallies, however moderate, need to be viewed as opportunities to sell ahead, which now includes 2025. Currently, the December 2025 corn contract is trading near $4.90 with the longer-term baseline projection from the USDA at $4.30. November soybeans are trading near $11.75 – again, a price that, for now, is above the average price projection of $10.25 for 2025.
What can you do about it?
Spend time mapping out an acceptable price for you to begin sales for 2025. Another old saying is “hopefully, the worst sales are your first sales.” This may be a good approach to apply to your planning. If it turns out, you will have sold some product before a price rally. And should a price rally occur, you have the opportunity to build a higher average price. It is a best guess to calculate the cost of growing crops a year from now. Making generalized assumptions can help in planning input purchases and product (your production) sales for a longer-term marketing strategy.
The bottom line is to stay alert and let people in your key management circle (whether they be family members, vendors, or buyers) know your goals and what you want to accomplish. If you ask for their input and help, most likely they’ll be happy to oblige.
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.
Author
Bryan Doherty