In our August 2024 Insight, we discussed the apparent shift from a September to August seasonal low. As you might recall, a major contributor to this shift appears to be the large increase in on-farm storage. The many farmers who fail to move their grain throughout the year have found themselves with bins full of grain as they head into harvest, forcing them to offload grain at the end of summer.

 

Take a second to think about the implications of this seasonality change. To all appearances, new behavior across a large bloc of producers has literally changed seasonality expectations. Unlike relatively smaller segments like processors, exporters, or managed funds, farmers (via the sheer volume of supply they bring to market) have an enormous – if not the biggest – impact on prices among market participants.

 

Taking this a step further, this means that if you market when most other farmers are marketing, you’re going to be primarily a price taker as the influx in supply drives prices downward. From your point of view, it is potentially far more lucrative to take a more contrarian view and make your marketing decisions strategically and methodically, mindful of how group selling behavior can help you make decisions beneficial to you. Furthermore, bear in mind that other market participants pay close attention to how farmers are marketing as a whole to attempt to maximize their own profits. Let’s take a look at how managed money capitalizes on the marketing habits of farmers and then think about the implications for you.

 

 

Managed Funds Made Money This Summer with the Help of Farmers

 

While managed funds are a major market participant, their positions in the market are dwarfed by the collective supply delivered by farmers. In fact, their largest positions have been about the size of carryout in contrast to the entire crop delivered by farmers. Instead of thinking about the size of their position, think about how adept they are at using their knowledge of the market and collective farmer behavior to successfully speculate.

 

Take corn this past summer, for example. Managed funds saw that farmers as a whole had a significant volume of grain in on-farm storage. On June 1, 2024, farmers held 3.03 billion bushels of corn in on-farm storage. Most (if not all) of this grain would likely come to market before harvest in order to clear space for new crop bushels. (See USDA June 28 Grain Stocks Report.) The opportunity for managed funds? Short the futures market, knowing that most (if not all) of that stored corn would come to market in the coming months before harvest, likely at a lower price.

 

Let’s take a look at how managed funds behaved with the knowledge of collective farmer behavior.

 

Shorting the Market in a Falling Market (see chart below table for price chart for Dec 24 corn)

 

 

 

It’s easy to see this short strategy as a success for managed funds. They saw that the farming segment held more bushels to sell than what the market was prepared to absorb. They developed an approach to capitalize on this knowledge by selling contracts at a higher price with the objective to buy them back later at a lower price. Did their short positions dampen prices earlier in the season? Possibly, and only because they counted on the sales of stored grain, and prices to fall accordingly. In the end, the managed funds’ strategy only worked because farmers held onto huge stocks of grain as harvest approached.

 

 

What Does This Imply for Individual Farmers?

 

Every segment in the market needs to set a strategy centered around their own unique needs and situation. Unlike managed money, who at any moment can be long or short, grain farmers are almost entirely short the market – always having grain to sell and not looking to buy. As a result, the strategies taken by managed money is different from what we would advise a farmer.

 

The big takeaway is this: If you sell at exactly the same time as most farmers, your price will be driven by the huge impact farmers have on supply. Instead, work toward being strategic, methodical, and somewhat contrarian:

 

• Remember that those storing more and more of your grain are in search of a higher price. If you hold out until harvest (as many do), you are simply paying to store grain only to sell at the harvest low. Instead, design a plan to sell your grain throughout the year.
• Consider making periodic sales throughout the year at advantageous times so that you can take advantage when the demand is higher and the supply is less readily available.
• Seek advice from professionals like the consultants at Total Farm Marketing. At Total Farm Marketing, we help you make solid decisions that take the emotions out of marketing so that you can make decisions based on math and solid analysis.

 

 

 

This year, Total Farm Marketing is celebrating our 40th year helping farmers.

Give us a call at 800.334.9779 to discuss your situation and how we can help you achieve marketing success.

 

 

©January 2025. Total Farm Marketing. 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. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. 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 may have already factored in the seasonal aspects of supply and demand. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Total Farm Marketing and is, or is in the nature of, a solicitation. 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 refers 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. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.