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Market Commentary for 6/12/23

Jon Scheve with weekly market commentary made on June, 9, 2023

Corn prices are volatile despite that old crop stayed mostly between $6.00 and $6.10, while new crop values ranged between $5.20 and $5.45 the past week.

It seemed that the evening 10-day forecasts were showing rain, so prices would go down and then, by morning forecasts shifted drier pulling prices back up. If weather could be predicted, futures prices could be predicted too.

June’s USDA WASDE report is one of the least important reports of the year because few changes are usually made, and this year was no exception. Typically, weather forecasts will be impacting prices more than the June USDA WASDE report this time of year.

Traders will now wait for the USDA’s June 30th Acreage and Stocks report. Arguably that report is one of the most important of the year, because it shows the planted acres and updates estimates for the remaining grain left in storage.

2022 Crop Marketing Recap – Final Old Crop Bean Futures Price Review

As the 2022 marketing year ends, I like to review all my trade decisions to evaluate performance and identify areas of improvement in the future. Last week I reviewed the results of setting basis on my old crop beans. This week analyzes the futures value sales of my beans.

Sale #1 - Review and Evaluation

By October 2021, I had watched the value of 2021 beans fall from a high of nearly $17 to almost $12 over several months. After looking at the chart below, I became concerned prices for the 2022 crop could fall further, back to 2016 through 2020 levels. So, to minimize my risk, I sold 25% of my 2022 bean crop with futures at $12.35.

Why Make a Sale So Far in Advance?

There were several reasons:

  • Except for summer 2021, prices had not exceeded $12 since 2016, and prices had not been above $12 for any length of time since 2014.

  • South America’s crop had been planted on time and reports indicated production would likely be a record. That meant unless there was a drought there, US bean prices could drift even lower. Brazil eventually did have a drought, but it was not known until over two months later.

  • There was still a “trade wars hangover” in many traders’ minds that prices could go down again and stay down for quite some time.

  • Biofuels looked promising, but it would take several years before many plants were operational.

  • In 2020, I also sold 25% of my crop for $10 nearly one year in advance, after not seeing $10 for several years before. I was happy with that decision at the time and this sale was over $2 per bushel higher than that trade.

  • It would still be another 4 months before Russia invaded Ukraine.

It is easy to forget the real fear farmers faced that prices could drift back to under $10 again. Since my 2022 breakeven price was around $11, I thought it was prudent to reduce some risk by selling some of my crop for over a $1 per bushel profit when I had the chance after witnessing a major pull back on the 2021 crop.

Sale #2 - Review and Evaluation

By Spring of 2022, weather on our farm in southeast Nebraska was dry, and we were very concerned about our yield potential as we were planting. Combine this with the war in Ukraine that had just started and was heavily impacting the market, I did not want to sell anything into the June rally. Instead, I opted for a wait and see approach.

In the meantime, to minimize my risk for my whole farm operation and help me feel comfortable waiting, I bought December puts and along with some previously made forward sales I had on I went to being 100% protected on my 2022 corn crop. By having my corn completely protected, I felt more secure not having all my beans protected. Since both crops are always in my planting rotation, I often use either crop as a hedge against the other to offset market surprises and overall risk.

Then as I shared last week, I set my basis in mid-November against January futures on 100% of my beans. After my previous 25% futures sale mentioned above was used to offset some of those basis sales it left me with 75% of my bean crop still needing futures values sold.

Over Christmas weekend, I became concerned about Brazil’s weather. While Argentina was very dry, Brazil’s bean weather forecasts looked favorable. Therefore, I decided to sell my remaining 2022 bean futures position when trading resumed after the long weekend.

I had expected the market to open lower after the Christmas holiday, but it was actually trading much higher. As the chart below shows, I sold the remaining 75% of the crop at $15.06 on December 27th.

Another reason I sold my remaining beans was because at that point I only had 10% of 2022 corn crop covered with sales, and the floor protection from the puts I previously purchased had expired a month earlier. Since I thought there was more upside potential on my old crop corn, I thought selling my old crop beans helped reduce my farm operation’s overall risk moving forward. All totaled, my final futures sales averaged $14.38. With my basis sale included, my cash value was just under $15 for my entire 2022 soybean crop picked up on the farm. Next week: The strategy I used to protect my 2023 bean crop and how that was used as part of my corn marketing strategy.

Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387


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