Top Tips on a Thursday
“The opportunity for higher prices is definitely there,” as one broker put it in today’s edition of Top Tips. But that potential upside can put savvy grain marketers in a bit of a pickle. Do they book sales now or hold out for even better prices? The latter strategy requires one of several hedging strategies to optimize profit potential.
And while recent flooding events in the eastern Corn Belt are worth watching, your overall focus should remain worldwide, especially as it concerns climate trends in South America and an escalation unfolding between Ukraine and Russia – two countries that desperately need safe passage for their grain exports right now. Keep reading to see what actionable items you may want to consider moving forward!
- Keep paying attention to ongoing geopolitical tensions in the Black Sea region.
- El Nino conditions could prove detrimental to South American crops – and U.S. prices.
- PLUS: Learn why you have to “feed the bull every day.”
Jeremy Strubhar, Advance Trading
“The opportunity for higher prices is definitely there. We want to be open if this market is to run to the upside. But at the same time, we could easily crash and burn simply from political events and/or surprises on yields on the supply side. So, I want to set a floor but keep our upside open.
“We sound like a broken record at our company, but that's because our tried and true method of using options to set floors has proven to work. For corn that you’re not going to sell at harvest, I would definitely buy a put, protecting my downside. For corn that I would sell at harvest, I'd go ahead and start to lock in some of my fall delivery and buy call options, which keeps me in this market if the market is to go higher. For corn, I'm going to store on farm, it gets a little bit more specific to each operation. But we should buy a put in the March, May, or July timeframe to lock in some of that carry.
“On beans, a very similar scenario, but the current spread on the bean future spreads does not return as much to an average farmer who does borrow money when you factor in the cost of money.” – Jeremy Strubhar, senior broker, Advance Trading
ACTION: Buy call options for at-harvest sales of corn, consider buying puts for corn stored on farm.
Naomi Blohm, Total Farm Marketing
“Drought and flooding have dimmed prospects for what was once expected to be a bumper crop in the United States. The current crop tour is confirming yields to be less than one year ago. The question is now, "how much less?" With corn and soybean prices now trading back up to the May and July price high areas, farmers are taking note.
“Many producers did a great job of making cash sales on price rallies in May and July. But now, with the grain market fundamentals shifting to friendly due to the drought in Europe, and the mix of adverse weather in the United States this summer, the question arises, "what if yield truly is substantially less than expected, and what if grain prices make new price highs?
“Those earlier cash sales from May and July likely still look good, and many farmers have more new crop grain they could price should the market keep rallying. But might it be worthwhile to look at re-ownership strategies with call options? What if corn prices actually can climb higher than $5.00 in the nearby December 2026 contract? It has been many years since the world has dealt with adverse weather conditions in multiple countries, and the El Nino pattern seems to be in full effect, which could mean poor weather for additional countries of the world, especially South America. If South America crop production suffers due to drought in the coming months, then a significant price rally could be in the works." – Naomi Blohm, senior market adviser, Total Farm Marketing
ACTION: Brush up on your marketing skills and get current with call options, which allow for re-ownership on paper, and allows you to participate in a rally, should prices keep edging higher.
Dustin Johnson, AgYield
“Grains are near contract highs again as we near crop maturity. In just seven short weeks, December 26 corn has rallied by over 75 cents/bushel to breach $5 again. November soybeans are in the mid $12’s, and December SRW traded above $7!
“The recent change in sentiment comes from declining yield expectations, as well as rising war premium in the Black Sea. The USDA dropped their corn yield from 183 to 180.7 bpa on Aug. 12, well below the average analyst estimate at the time. However, in the process they also raised corn acres by 1.4 million. This actually resulted in an increase of production month-over-month despite the surprise decline in yield. While production was neutral, the market’s focus has been on that yield drop and the potential for it to decline in future reports. To reinforce this sentiment, the first few days of the PF Tour have shown disappointing results as of this writing.
“In addition to the yield uncertainty in the US, problems overseas may be equally important to the market. It has been well established that Europe will likely have a significant yield cut this year. Additionally, Ukrainian and Russian shipments have started to fall off from export suspensions. Both of these factors are adding fuel to the fire.” – Dustin Johnson, director of hedging operations, AgYield
ACTION: Take advantage of the current selling window now to set price floors so you can reenter the market with a portion of that revenue using calls or call spreads if needed. We feel this is a responsible way to stay in the market.
Lauren Urbanczyk, Texas Hedge Risk Management
“We've seen some significant moves in corn and beans this week. We're coming into an important time where our focus needs to be just as much on logistics as it does price action. What does bin space look like? Are there any old crop bushels remaining that need to be moved before harvest? If so, reward this rally.
“Keep a close eye on basis, as it will be different in every region. Basis is its own unique component in the cash price and one that should be managed as its own animal. There could be some good opportunities right now to lock in basis. Weather has been challenging across most of the country, between the extreme drought or extreme flooding. As we come into the harvest season it's also important to take care of yourself in mind, body and spirit so you can show up and lead your business from a place of strength.” – Lauren Urbanczyk, cofounder, Texas Hedge Risk Management
ACTION: Check basis levels, work on logistics, hopefully fill some target orders and replace those with some additional targets and re-ownership strategies.
Susan Stroud, No Bull Ag
“USDA put a higher floor under production by adding 1.4 million acres each to corn and soybean plantings. With acreage mostly settled and finishing weather fairly favorable, I wouldn’t assume crops automatically get smaller from here.
“Corn is increasingly a demand story. Exports keep climbing, European Union feedgrain supplies are tighter and Black Sea flows remain uncertain. Soybeans may be more about local basis than futures this fall. Record production is unevenly distributed, while China’s return and new crush capacity could create very different regional dynamics.” – Susan Stroud, analyst & CEO, No Bull Ag
ACTION: Use market strength in corn to make incremental sales rather than wait solely on a lower yield.
Jacqui Fatka, CoBank
“Fertilizer prices are expected to remain above pre-Iran war levels through 2028, creating sustained pressure on farmers and agricultural retailers as global conflicts and supply chain disruptions continue to reshape the nutrient market. Although prices have retreated from the historic highs seen at the start of the war, elevated fertilizer expenses remain a major headwind for the U.S. agricultural sector. Phosphate markets are expected to remain especially tight.”
“The ripple effect of the Middle East conflict, compounded with tight supplies, will create higher fertilizer prices and complicate sourcing well into 2027 and beyond. Availability and affordability concerns have already triggered demand destruction and deferral, making the price outlook increasingly difficult to predict. Ultimately, market recovery will depend on stabilization in the Middle East, lower sulfur prices and shifts in global demand patterns.” – Jacqui Fatka, lead economist, Farm Supply and Biofuels
ACTION: The best tool in a producer’s toolbox is knowing your cost of production so you can be more informed when it’s time to buy. As you’re making decisions for the 2027 crop, see what data you can line up on yield impact and the cost of not applying to this year’s crop.
Jason Gehler, Blue Line Futures
“For producers, I think the clock has been ticking long enough that you got to be looking at cutting loose the rest of your old crop at this point. The $4.95 to $5.05 range in December corn has just been kind of the upper boundary of the market. It’s an actionable level for corn. We have the pieces in place for more price upside with wars ongoing and the wheat market’s capability of popping 20, 30 cents on any given day if you get the right headline.”
“But you have to feed the bull every day. This week, it's being fed by disappointing crop tour results, which is kind of making everybody question, do we have a smaller crop? Things could get a little choppy. I find it hard not to reward what's been a 40- to 50-cent rally in the last few weeks. I could see a pullback coming, you know, 20, 30 cents in corn.” – Jason Gehler, Senior Market Strategist, Blue Line Futures
ACTION: Use call options to leave the upside open. Buying a 5.10 or 5.20 call option just in case the market runs up to $5.50 is one way to participate so the market doesn’t leave you in the dust.