Post Memorial Day trade has been disappointing for those looking for marketing opportunities in grains.
Corn, soybeans, and wheat all opened higher out of the holiday weekend before reversing to finish lower that day. Since the close on Friday leading into Memorial Day weekend (two weeks ago), December Corn has lost 21 cents, November soybeans 61.75 cents, July SRW 69.75 cents, July HRW 55.5 cents, and September spring wheat 59.25 cents.
At this stage, the amount of corn production in drought status has dropped to only 3% which, in the market’s view, significantly reduces the threat of hot and dry weather severely impacting yields. This suggests that a forecast for hot and dry weather sometime in the next few weeks may be your last shot to market bushels. With 75% of the corn crop rated Good-to-Excellent as of June 3, the fund manager will be hesitant to aggressively buy a weather narrative unless it is very compelling.
The problem we potentially face is if that forecast never comes to fruition.
We have discussed similarities between 2024 and 2014 rather regularly over the last several months. Although the Dec 2024 corn futures contract didn’t make it quite as high as its 2014 counterpart (roughly 20 cents shy), our current 2024 highs were made in a similar timeframe as 2014.
The question many are asking is whether the seasonal high has already been made. There is no way to really know until we know, but recent price action warrants the conversation of what to do to manage downside risk if the highs are indeed in. I understand the difficulty of marketing bushels before they are physically there to sell, but markets will have moved to much lower levels before harvest if the crop materializes and a weather event does not.
In 2014 futures stayed soft during most of the trade in June, and then plummeted after the Quarterly Stocks and Acreage report on the last trading day of the month. If we follow a similar pattern to 2014 and a weather event is absent, the month of July will be an extremely difficult month both mentally and emotionally.
This is the exact timeframe and type of market for put ownership. Buying a put is one of the only things that will cover your downside while offering unlimited upside should a problem with weather arise. The other is making sales and buying calls to allow participation in a rally. Either way, depending on where you are in your marketing plan, it is likely that some action is warranted.
A short-dated put that is priced off new crop futures, but expires in either late July or late August, is a tool to provide a floor during the critical timeframe ahead while allowing opportunity to sell bounces. Buying the put outright will not be a marginable position. However, selling calls to pay for puts does make the position marginable. So be sure to deploy a strategy that fits your comfort level.
I am not here to tell you whether margin calls are ok. That is for you to decide. I am, however, here to educate you and provide ideas that match your risk tolerance. Due to regulatory guidelines, this is not a forum for recommendations.
As far as the chart reads are concerned, both December corn and November soybeans held support right at their April lows, which “could” mark levels to recover from into mid-month. If this week’s lows hold for both products, a move to $4.80 December corn and $12.15 November soybeans would make a textbook right shoulder on each for a pattern called a head and shoulder top. It appears, at this moment, a move to those levels in the short-term warrants making marketing moves because a failure at those price levels will likely solidify the idea that the tops are in.
Both December corn and November soybeans failed twice at their respective 200-day moving averages (blue line) during the month of May. A third test to the 200-day in both cases during June would be close to where those right shoulders look to potentially occur. One quick glimpse at the charts and it is evident that the trend is down for both contracts – and has been for the last two years.
If we’ve already seen the high for the season in the grains, it will be the most disappointing spring since 2020. But that doesn’t mean the risk is gone.
For hedge ideas, price targets or to just shoot the breeze about the market, feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT for assistance. We are here to help.
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