Use strategy to capture market opportunity

Fundamentally, this market doesn’t have a lot of upside unless South America turns dry. It appears some farmers are taking advantage of these rallies to catch up on sales, but many farmers are still uncertain. This is why a marketing plan is so helpful. It can help take the uncertainty out of decision-making.

Soybeans

Beans showed some life after the new Argentina President announced his soybean export policy. Most likely, the soybean export tax will gradually disappear over a number of years. This may be bullish near-term as South American farmers will be rewarded for holding beans until taxes lower. However, long-term this may keep a lid on prices for several years.

Corn

Corn continues to trade in a 10 cent trading range. There isn’t much demand in the world for corn right now.

Marketing strategy – Capturing opportunities

This summer some of my new clients began selling grain on rallies. The strategy — start selling 5% of their production at $3.75 and then selling an additional 5% with every 10-cent increase. This strategy resulted in 50% of their production at an average sale price of $4.12 on the Dec futures.

Clients using this strategy above were able to capture market carry on their sales. They received an 18-cent premium for holding their grain until June. Meaning their $4.12 sales against the Dec turned into $4.30 by holding the grain until July.

Many farmers didn’t think making these rally sales last year were a good idea, thinking they should hold for $4.50, $4.75 or maybe even $5. I’m sure today many wish they would have sold more than they did when it hit $4.50. Even I wish I would have sold much more of my 2016 crop when I saw $4.50 futures. In these types of situations it would be best to remember the market carry premium, which can make early sales like those look much better.

Basis opportunities

These sales also don’t take into account the movement of basis (difference between CBOT and local prices) from the middle of summer until now. Basis levels in the western Corn Belt went from -.40 last summer and before harvest to -.20 in the last couple of weeks. Basis changes in the eastern belt have been even more dramatic with -.30 common in the summer to +.20 being very attainable now. That means that farmers who did presell their grain using futures and captured the carry have the opportunity to sell their grain at even more profitable levels.

Understand the market

The market already knows how farmers think and market their grain. Savvy farmers understand how the market works so they can take advantage of the opportunities available. Occasionally farmers catch the market off guard, like in the fall of 2014 when farmers didn’t sell grain at very low levels causing a bump in prices, but that doesn’t always happen. This year end users aren’t making the same mistake as last year by not having enough coverage on at lower values.

2016 should have opportunities for farmers too. However, a farmer needs to be ready and learn how to use the market to their advantage. I encourage all farmers to learn more about how to reduce risk and use the carry and basis to their advantage. By seeking advice from people who understand how the market works, farmers can increase their farm operation profits.

Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at jon@superiorfeed.com.