El Nino to La Nina
What’s Happened….
El Nino and La Nina are warm and cool phases of a recurring climate pattern (every two to seven years) that form in the Pacific Ocean and can impact growing seasons in the U.S. Typically, during an El Nino event, the Midwest growing season experiences cooler temperatures and normal rain patterns. Following an El Nino is La Nina, which may usher in a warmer and drier pattern. According to NOAA (National Oceanic and Atmospheric Administration) as of March 14, there is now a 62% chance La Nina will occur this year from June to August.
Why is this important….
After several years of less-than-normal rainfall, Low subsoil conditions have parts of the Midwest in need of soil replenishment. Should this spring’s weather developments in the corn and soybean belt remain on the drier side, timely rainfall will again be needed to replicate last year’s strong production. Above-normal temperatures and below-normal precipitation could adversely impact yields. Last year, while dry, timely rains and a cooldown in temperatures during July were helpful. For many, this led to better-than-expected yields. Can farmers count on timely rains again? Only time will tell. Carryout increased in the 2023/2024 marketing year, suggesting supplies are adequate.
For many, selling rallies moving forward will be important. New crop futures prices are currently trading near $4.75 on December corn and near $12 on November soybeans. Selling too much too soon could be problematic if La Nina kicks in and reduces crop potential.
What can you do?
Create a marketing approach with balance. Selling too much too early could lead to a low level of income if prices rally more than you expect. On the other hand, not selling could lead to serious income loss if prices don’t rally much beyond expectations. Another big crop could push corn futures under $4 and soybeans under $11. Plan to sell rallies and have ownership in place. Consider purchasing call options when you sell cash. If you want to be aggressive, you can buy call options now when volatility is low and set higher target points to sell cash. Then, if prices rally, allow targets to be triggered (don’t cancel orders), since you have re-ownership already in place.
Adding to the balance could be purchasing put options. Purchasing puts to establish a price floor can be impactful to your bottom line, should prices decline. Puts can be bought to cover the downside price risk of expected crop you do not intend to forward sell.
Understand your exposure to risk and have conversations with your advisor. Preparing for different price scenarios is a key to developing sound marketing strategies.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
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