In Part 1 of this special series, we’ll explore the familiar elements that often move the markets and how to think strategically about selling your crops as the market moves.
What factors are currently influencing the commodity markets? Let’s take the recent upturn across the grain markets and corn as an example. In November, CH25 fell to $4.25, but as of today, it has surged back to $4.89.
What might be fueling this increase?
- Managed money, often referred to as “the funds,” has reached near-record long positions and is increasing their contracts, sharply contrasting with their previous net short position.
- Argentina has lowered its crop forecasts due to unfavorable weather conditions.
- CONAB reports that Brazil has only completed a little over 1% of their crop, compared to the typical 10% for this time of year.
- Equity markets are recovering from prior declines, (S&P 500 and NASDAQ)
Any combination of these factors, among others, could be driving the more than 60-cent rise in corn prices. It’s unrealistic to think you can sell everything at the top of the market, as market tops can be elusive, and trends can reverse quickly. During a price rally, stay vigilant watching managed money movements, international production, currency strength, equity market trends, trade agreements, and significant political developments. All of which can have a large impact on commodity prices.
Having a solid marketing plan in place is essential for achieving success, and this goes beyond just looking ahead to 2025. Developing a plan for your 2024 stored crops is just as crucial as arranging contracts and sales for new crops. This becomes even more critical when you take carrying costs into account. Although your payout from the elevator may increase, so too will your interest charges.
Consider a farm operation with 70,000 bushels of corn stored commercially witha a steady market price of $4.82 per bushel with a debt of $325,000 owed at various interest rates. Over 30 days, the carrying cost in this scenario amounts to $6,746.62 or $0.10 per bushel. Observe how interest and storage fees can eat away at profits. While prices might increase, prices could also decline.
The duration for which your crop remains in commercial storage or in the bin can significantly influence your profitability for the year. As illustrated in the table above, your profit will vanish entirely between the 30 to 60-day period. While there may be instances where waiting to sell boosts profits, when you factor in carrying costs, the actual increase in profit is often less substantial than anticipated. It’s important to look beyond just the sell price of each bushel; assessing the holding costs is crucial for truly understanding the boundaries of your profitability.
In Part 2 of this special edition newsletter, we will discuss the grain marketing pyramid strategy of selling, which is a strategy designed to mitigate commodity price fluctuation risk.