Top Tips on a Thursday
Grain markets extended a war- and weather-driven rally into late July, sending corn futures to two-month highs and soybeans to 2 ½-year highs. How high is up? It’s impossible to say for sure in markets driven by such an extraordinarily volatile combination of factors. Our experts offer a few ideas how on how farmers can take advantage of market conditions while also protecting their downside and backside.
- How to “empower” your balance sheet in unpredictable markets
- Dry August-September finish could put a $13 in front of soybean futures
- PLUS: Keeping eyes open for fall opportunities to price 2027 fertilizer
Brady Huck, Empower Ag Trading
“The grain rally this month has been the type of market move that farmers need to position for and ask themselves, do I get sucked into the hype and wait for higher prices? Or do I act now to take advantage? Higher prices offer an opportunity to catch up if you're behind in your marketing. Hopefully you had positions on prior to the June selloff and were able to manage those positions and protect position equity.
“Now, I think you regain control, adjust positions to protect gains in equity but do so in a way that retains and extends opportunity to participate in further upside. I can't emphasize enough the importance of using tools, such as option contracts, that allow you to retain upside opportunity and avoid overcommitting on production. This will enable you to execute in a big enough manner to make an impact on your balance sheet.” – Brady Huck, principal and adviser, Empower Ag Trading
ACTION: Avoid getting sucked into the day-to-day, near-term market noise and focus on empowering your balance sheet and while respecting the unpredictable nature of these markets. Look at buying put options or making cash sales combined with long call options for marketing the last 50% of your expected production. The first half of your expected production is the easiest to market, it's the second half that becomes difficult to make decisions on.
John Zanker, Farmer’s Keeper
“For soybeans, unlike corn, there hasn't been much irreversible yield damage so far and a moderate August could still bring a yield in above last year's record of 53 bushels per acre. But like corn, this crop is not set up as well as last year for an ugly finish in August and September. The Dakotas had a good-to-very good crop last year but that performance is going to be difficult to repeat. South Dakota in particular has become a major player in both corn and soybeans, so we'll be keeping a close eye on how things unfold there.
“When grain futures open Sunday evening, the extended forecast is going to be taking us to August 9 and it's going to be much easier to talk about irreparable yield damage. Given the current supply-demand makeup, there is no room for a two bushel per acre national yield decline without pushing the November soybean contract over the $13 mark.” – John Zanker, Farmer’s Keeper
ACTION: Price movement favors the upside but additional new crop sales make some sense from a profitability standpoint. However, those sales need to be covered with a minimum price attachment, such as through the purchase of a call option, because a dry finish in August and September is going to put a ‘$13’ in front of futures.
Chase Koopmans, The Grain Ledger Rundown
“Every price on the board has two parts: the bushels that are actually there, and the premium the market adds for things that might happen. Right now, an unusually large share of these prices is premium. War premium, for Black Sea grain that’s stuck but not destroyed, and weather premium, for heat and dryness that hasn’t done its damage yet.
“That’s not a reason to be bearish — premium can build a long way when the story keeps escalating, and both stories are escalating. But it is the reason to be clear-eyed: premium deflates faster than it builds. A ceasefire headline, a shift in the two-week maps or one good rain forecast across the western Corn Belt can take a chunk out in a hurry, because there’s no missing bushels underneath it holding the price up.” – Chase Koopmans, writer of The Grain Ledger Rundown blog
ACTION: We’re getting to price levels we haven’t seen in a while, and taking some risk off the table and rewarding the market is not a bad idea. I’m not bearish enough to think this falls apart tomorrow, and not bullish enough to sit here unpriced hoping for more. If the heat delivers and this runs further, that’s what put options are for. But I’m not going to let a rally like this pass by while I wait to find out. Keep the bottom side protected while leaving some room for the top side.
Matt Wiegand, FuturesOne
“We have continued to see buying build in the grain markets this week even with some short-term weather relief on deck for many areas of the belt. Crop condition scores remained very solid on Monday and underline the crop potential remains good in many areas, but we are in the time frame where that can change with adverse weather from here as the corn finishes pollination and soybeans get closer to the key podfill times.
“World events continue to drive action as well, with energies continuing to erase the losses seen in the initial cease fire hopes, while European prices continue to rise with the aftereffects of the summer heat, and Black Sea shipping disruptions through the key harvest time frame. We have continued to see better booking of new crop soybeans as well, which is a good sign for a more normal fall shipment season. With the additional buying we are seeing fund length increase and conditions get more overbought (and oversold in cattle), which could set the table for a broader short term profit taking day or two as we head towards the end of the month.
“Short term, producers will need to continue to evaluate crop potential and be willing to reward rallies as weather markets can shift momentum in a hurry, and even if we see the crop go backwards heading into the early harvest time frame in the south can add early harvest pressure. Continued strength in energy markets may start to raise freight costs further, which will need to be watched for basis coverage, as well as harvest fuel needs with the early August seasonal weakness under threat from the recent market action, even as we have seen builds in distillate inventories.” – Matt Weigand, risk management consultant, FuturesOne
ACTION: More places will likely start to offer 2027 fertilizer pricing for fall, which can create opportunities to lock in some margin with 2027 corn near $5, soybeans near $12 and Kansas City wheat near $8.
Lauren Urbanczyk, Texas Hedge Risk Management
“This has been a busy week in the grain markets with continued weather and geopolitical headlines. I continue to reinforce that farmers should know their current and desired percentage sold by this time of the growing season. For farmers who expect a weak harvest basis and no storage, we’re looking at forward contracting grain and using a combination of short-term and long-term options to participate on the board.
“For farmers who expect basis to strengthen in or after harvest, we’re protecting this rally with options. The cattle market has been especially ugly the past several weeks and we’re adding to hedges on weakness. Until the beef cutout finds support and we see open interest show us that fund liquidation has subsided, we are staying hedged.” – Lauren Urbanczyk, cofounder, Texas Hedge Risk Management
ACTION: Owning duration and selling short-dated premium has worked well, and with the continued volatility, it will continue to work well for the foreseeable future.
Dustin Johnson, AgYield
“Kansas City wheat is the clear leader in recent weeks. Renewed escalation in the Black Sea region has driven flat prices higher as Russia has suspended transit out of the Sea of Azov. This route represents just over 25% of annual Russian wheat exports. It is interesting to see that HRW has led SRW given the fact that most of that wheat is the SRW variety. Perhaps this price improvement has more U.S. bushels being sold in the eastern belt while limited supplies in the west are being held tight in the bin.
“While Black Sea war premium is driving wheat prices higher, the Iranian conflict is also likely driving a fear bid. Urea NOLA futures are up $30 for the month, and the fear of future input supply disruptions may be driving the back end of corn higher (July 2027 and beyond). Furthermore, September WTI crude oil is up over 25% for July.
“Weatherwise, it hasn’t been the best setup given the early rain followed by late summer dryness in large parts of northern Illinois and eastern Iowa. While we do not believe this has significantly reduced the national yield up to this date, the stage has been set for a potential trendline yield miss if the dry pattern persists. If that were to happen the market may need to ration some of this record demand. The market appears to be getting a little ahead of this now, but the last half of the summer will likely be the determining factor.” – Dustin Johnson, director of hedging operations, AgYield
ACTION: Reward this rally with sales for many corn growers with high yield potential and protect middle ground revenues for growers who are projecting average to sub-average yields using other insurance products.