TOP FARMER WEEKLY PERSPECTIVE 4/24/20 BY BRYAN DOHERTY

New Crop Pricing: Be patient

With the coronavirus changing the world in a matter of weeks, one could say the world has been turned upside down. In the midst of the pandemic, worries, fears, and uncertainties surround us twenty-four-seven. There is no escaping it. Everyone and everything have been affected. Markets, whether commodities or equities, have reflected consumer concerns by shaking off risk pricing in bad or even worst-case scenarios. Yet, even the most risk-averse financial advisor will likely encourage you to stay the course, plan, and don’t panic, now that values have been slashed. Farmers are worried, as they face prices below the cost of production for the crops they are about to grow, and still should not panic. Acceptance of “it is what it is” may be the most appropriate attitude currently. Moving forward, you can expect that, once the pandemic subsides, price recoveries will occur. The world will still consume food, and the need for continuous big crops will be paramount.

Is there a best approach? While it is always possible that prices for commodities can move lower, selling now would likely be a regrettable action if, in fact, prices do recover. If you were not willing to sell a few months ago, it probably still does not make any sense to sell now. The funny thing about markets is that, once people think they have them figured out, they are usually proven wrong. What we all have today is information packaged with a lot of emotion and questions. What if prices continue lower? What if Russia continues to pump oil? These questions are but a few of the endless number we could ask ourselves. Most really reflect what you know today and assume the trend of recent weeks will continue. What if the trend doesn’t continue? Corn and soybean producers have time to market the crops you are about to produce. Be patient; the situation will change.

Strategically, now is a good time for feed users to lock in harvest-type low prices. It is also a good time for row crop producers to purchase call options to cover future sales. The emotion and information in the marketplace could look a lot different down the road. We know that, with good weather, good crops will likely be produced. Selling rallies is prudent, yet it takes a lot of courage to sell enough that matters to your bottom line if prices rally. The market psychology will likely change when prices move higher and reflect new information to suggest a continuation of that trend. We all know price rallies can end abruptly, and selling enough before they turn lower is the challenge.

Take time now to plan for a price recovery. Determine how many bushels you want to sell, and how to cover those bushels in case weather becomes a factor.  Determine the price level at which you would be willing to buy puts on expected production you do not intend to sell. Strategy will win over emotion.

If you have questions or comments, contact Top Farmer at 1-800-TOP-FARMER extension 129. Ask for Bryan Doherty.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Author

Lisa Heder