Sell and Re-own
What’s Happened….
Soybean futures have rallied for five consecutive weeks and have traded more than $1.00 higher after finding a bottom in mid-August. The rally has been somewhat unexpected, considering crop ratings have remained high and yield expectations unchanged at a record high 53.2 bushels bpa (bushels per acre), according to the August WASDE report. There are several factors providing underlying support: a dry weather pattern since early August in most of the Midwest; short–covering by managed money (buying back sold futures contracts); and weather developments in the Southern Hemisphere that could lead to planting delays.
Why this is Important….
Projected carryout (leftover beans at the end of the marketing season) are forecast at 550 million bushels. Historically, this is a high number and suggests that a price rally may be short-lived. As harvest progresses and if rain forecasts return to central Brazil, bean prices could come under pressure. Markets tend to move on perception. Currently, the perception is potentially smaller inventory from South America. It is really too early in the planting and growing season to put much stock in the current weather pattern, meaning perceptions could change quickly. Typically, drier conditions in September give way to the rainy season, which usually occurs in October.
Increased farmer and speculative selling could quickly engulf the soybean market. As a producer, you would hate to see this recent price recovery disappear.
What can you do about it?
A strategy that has merit is to keep a balance between cash sales and retaining ownership. If in doubt on what to do, consider selling cash and buying call options or bull call spreads. By selling cash, you generate income and have dollars to pay down debt, which is especially important in a high interest rate environment. Additionally, you stop storage costs and do away with market risk. Reinvesting a portion of this sale into a deferred month call option or bull call spread can keep you an owner. This can be beneficial if the current price rally continues. Regardless of which way the market goes, you can feel good about making decisions to prepare for the market’s next move.
Stay alert and look for opportunities. Have conversations with those that can help you execute and work toward meeting your goals. You know you are going to be busy during the harvest season, and you know it is important to take a few minutes to consider the financial implications of developing and implementing strategy or doing nothing. Implementing strategy may also give you stress and psychological relief, knowing you shifted risk and took advantage of a price rally.
Marketing is never easy, as decisions are always made in front of uncertainty. Yet, once decisions are made, most people at least feel good about doing something. By keeping a balance to marketing, you are setting the stage for success.
Find out what works for you….
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication 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.
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