Weather can be a wildcard

Here are top tips to take advantage of market volatility

In early spring we saw flooding in many parts of North America. Now, in June, there is drought in the midwestern United States. There is also a massive heat wave and fires over our neighbors to the north which is, in turn, impacting our own weather. This time of year, weather can be a major wildcard, not only for growing conditions but market conditions as well. It might seem like your life revolves around the upcoming weather reports 24/7, but that doesn’t mean you can’t give yourself some peace of mind. Now is a good time to protect your return on investment with price protection strategies that work like insurance so you can continue with the growing season without stressing about your marketing plan.

June often sees big swings in the market, due to big weather events that are common this time of year.  This is a critical time in the growing process for commodities in the U.S. and it’s also the time when we begin to see what type of crop we’ll actually have as opposed to the estimates put out by the USDA. You’re going to start to feel more confident about how much you can sell and begin to strategize ways to achieve a positive ROI.

Keep your eye on:

• USDA expected numbers report (June 9)
• Major USDA crop stocks and acreage report (June 30)
• Weather stories around the world - Is there flooding or drought in major growing areas?

Keeping your pricing strategies simple

The demand side of this equation will be looking to make sure that the bushels they need for production are available during this time. The need to make sure those “must-process” bushels are locked in, this can drive prices higher.

On the farm, you’ll be trying to determine if prices are profitable enough for you to sell or if you can afford to wait for a better level in the fall. June tends to be the time when you want to get more aggressive in pricing and making sure your needs are covered. So what does that mean for your next steps?

• First, understand your profit levels. Keep up with your break-even levels and talk to your Cargill rep to understand your current profit level based on the sales you already have. This time of year will most likely be your highest prices so secure profits early.
• Next, set a floor. If you find you still have some hesitation on making sales, consider locking in a floor to secure your profits while leaving room for more upside if you’re feeling particularly bullish. This is a great strategy for the coming months as well as we see prices begin to change the closer we get to harvest. We will go into depth on how to use floor protection in our July article.
• Finally, take advantage of available premiums. Because we expect to see the highest prices in June, this tends to be an advantageous time for capturing higher premiums for crop in the bin as well as new crop. Consider using contracts that provide a little extra premium while staying in the market for a longer time. Be prudent when it comes to how these prices will impact your ability to be financially solvent and take advantage of these premiums while they’re still available.

Don’t miss out on this mid-growing season opportunity. You could sell now, regret it, and get back in the market, or you could not sell, and have missed your opportunity if prices begin to fall. Be sure of your bottom line and manage price risk to make sure you’re able to get a good ROI. If you’re wanting to participate but are worried when prices may start to turn, check out our article on historical seasonality to determine the best time to exit spring/summer rallies.

 Severe weather and your pricing strategy

You will see the biggest impact on local basis levels from weather stories. If there’s a crop loss and grain companies can’t fill their contracts, basis will become very attractive to try and drum up more bushels. You could see swings in the futures market as well, but most of the change will be seen in the basis.

In the case of both flooding and drought, crop loss can lead to an increase in price as companies try to meet their needs. However, note that price increases, especially in cereals like wheat, will depend largely on the quality of the wheat. Severe weather can not only cause crop losses, but it can also impact protein.

Secure your break-evens now and think about getting profit on the books for the bushels you feel confident in. Reach out to your Cargill rep to explore the strategies that might be the best fit for your farm.