Old crop bean futures price review

By Jon Scheve, Superior Feed Ingredients, LLC 

Corn prices are volatile despite that old crop stayed mostly between $6 and $6.10, while new crop values ranged between $5.20 and $5.45 the past week. 

It seemed that the evening 10-day forecasts were showing rain, so prices would go down and then, by morning forecasts shifted drier pulling prices back up. If weather could be predicted, futures prices could be predicted too.

June’s USDA WASDE report is one of the least important reports of the year because few changes are usually made, and this year was no exception. Typically, weather forecasts will be impacting prices more than the June USDA WASDE report this time of year.

Traders will now wait for the USDA’s June 30 Acreage and Stocks report. Arguably that report is one of the most important of the year, because it shows the planted acres and updates estimates for the remaining grain left in storage. 

2022 crop marketing recap — Final old crop bean futures price review 

As the 2022 marketing year ends, I like to review all my trade decisions to evaluate performance and identify areas of improvement in the future. Last week I reviewed the results of setting basis on my old crop beans. This week analyzes the futures value sales of my beans. 

Sale #1 – Review and evaluation

By October 2021, I had watched the value of 2021 beans fall from a high of nearly $17 to almost $12 over several months. After looking at the chart below, I became concerned prices for the 2022 crop could fall further, back to 2016 through 2020 levels. So, to minimize my risk, I sold 25% of my 2022 bean crop with futures at $12.35.

Why make a sale so far in advance?

There were several reasons:

  • Except for summer 2021, prices had not exceeded $12 since 2016, and prices had not been above $12 for any length of time since 2014. 
  • South America’s crop had been planted on time and reports indicated production would likely be a record. That meant unless there was a drought there, US bean prices could drift even lower. Brazil eventually did have a drought, but it was not known until over two months later.
  • There was still a “trade wars hangover” in many traders’ minds that prices could go down again and stay down for quite some time. 
  • Biofuels looked promising, but it would take several years before many plants were operational.
  • In 2020, I also sold 25% of my crop for $10 nearly one year in advance, after not seeing $10 for several years before. I was happy with that decision at the time and this sale was over $2 per bushel higher than that trade.
  • It would still be another 4 months before Russia invaded Ukraine.

It is easy to forget the real fear farmers faced that prices could drift back to under $10 again. Since my 2022 breakeven price was around $11, I thought it was prudent to reduce some risk by selling some of my crop for over a $1 per bushel profit when I had the chance after witnessing a major pull back on the 2021 crop.

Sale #2 – Review and evaluation

By Spring of 2022, weather on our farm in southeast Nebraska was dry, and we were very concerned about our yield potential as we were planting. Combine this with the war in Ukraine that had just started and was heavily impacting the market, I did not want to sell anything into the June rally. Instead, I opted for a wait and see approach. 

In the meantime, to minimize my risk for my whole farm operation and help me feel comfortable waiting, I bought December puts and along with some previously made forward sales I had on I went to being 100% protected on my 2022 corn crop. By having my corn completely protected, I felt more secure not having all my beans protected. Since both crops are always in my planting rotation, I often use either crop as a hedge against the other to offset market surprises and overall risk.

Then as I shared last week, I set my basis in mid-November against January futures on 100% of my beans. After my previous 25% futures sale mentioned above was used to offset some of those basis sales it left me with 75% of my bean crop still needing futures values sold.

Over Christmas weekend, I became concerned about Brazil’s weather. While Argentina was very dry, Brazil’s bean weather forecasts looked favorable. Therefore, I decided to sell my remaining 2022 bean futures position when trading resumed after the long weekend.

I had expected the market to open lower after the Christmas holiday, but it was actually trading much higher. As the chart below shows, I sold the remaining 75% of the crop at $15.06 on Dec. 27th.

Another reason I sold my remaining beans was because at that point I only had 10% of 2022 corn crop covered with sales, and the floor protection from the puts I previously purchased had expired a month earlier. Since I thought there was more upside potential on my old crop corn, I thought selling my old crop beans helped reduce my farm operation’s overall risk moving forward.

All totaled, my final futures sales averaged $14.38. With my basis sale included, my cash value was just under $15 for my entire 2022 soybean crop picked up on the farm.

Next week: The strategy I used to protect my 2023 bean crop and how that was used as part of my corn marketing strategy.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. 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.

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