With the extreme volatility in the grain market, the days ahead will offer various nuggets of fundamental news items that could rocket prices higher or potentially bring the recent rally to a lull.
What’s happened
Grain futures woke up during February and early March with soybeans leading the charge thanks to a supportive social media post from President Trump suggesting that China might buy an additional 8 million metric tons of U.S. soybeans. The result was a nearly $1 rally for soybean futures.
Also, in February and early March, dry weather in the Plains and a growing drought monitor index across key wheat growing areas of the United States provided enough incentive for managed money fund traders to exit much of their hefty net short positions in wheat futures. The result was also a nearly $1 rally for both Chicago wheat and Kansas wheat futures.
Corn futures, not wanting to be left out, also saw modest short covering by fund traders thanks to strong export demand, allowing for a nearly 50-cent rally in that same timeframe.
Heading into the last few trading days of March, three things might create additional price volatility for grains:
- Biofuel blending mandates. EPA Administrator Lee Zeldin said the EPA will release the latest biofuel blending mandates before the end of March. And some are hopeful an agricultural event at the White House on Friday will include clarity on renewable volume obligations, or RVOs, and small refinery exemptions, or SREs.
- USDA’s Prospective Plantings and Quarterly Stocks reports. With a history of surprises, the March 31 reports can create either lower or higher price scenarios.
- The Iran conflict. With its correlation to energy prices, the Iran situation could create another rally in energy, which could potentially bring a further rally to grain trade.
From a marketing perspective
How to prepare and deal with price volatility:
- You need to decide where you are going to set your next targets for cash sales and how much to sell.
- Vice versa, if the market starts to fall lower, will you have the discipline to make the cash sale, even though prices are starting to fall?
One way to develop a balanced approach is to cash contract a comfortable percentage of your expected production on a potential “summer rally.,” On that “summer rally,” also set a floor with the use of put options on the remainder of your expected production.
If you make cash sales, remember that call options can be purchased to offset forward contracts, providing the potential for upward price appreciation. Also, some producers tell us that having call options in place gives them confidence and the discipline to forward sell.
A balanced approach can allow you to participate if the market heads lower or higher. More importantly, it keeps your emotions in check so you can make responsible sales. Have thorough conversations with your advisor as to when and how to implement such a strategy.
Prepare yourself
With just a few weeks before planting starts in the Midwest, use these days as an opportunity to plan out your marketing strategies! The final late spring/early summer rally can come and go in a frenzy, and you need to be ready with your plan.
Grain marketing is a process that is dependent on a wide, ever-evolving set of circumstances. Yet, with a consistent and disciplined approach, you will gain confidence in your skills. Creating a plan now plays a crucial role in avoiding the pitfalls of a wait-and-see approach to grain marketing.
If you have questions, you can reach Naomi at naomi@totalfarmmarketing.com or find her on X at @naomiblohm.
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. 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. 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 have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. 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 and TFM refer 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. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.