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Planning is Key When Markets are Quiet

Remember the old days when the corn market traded in a three-cent trading range and beans were within a dime’s trading range? Oh wait; that’s been the case lately. Quiet markets have been the name of the game to say the least, and when the market has moved out of its limited trading range, it’s been lower. This has been a challenge since harvest as producers try to find attractive pricing to move grain this winter.

It’s easy to become complacent with such quiet, depressing market movement, however, complacency is the last thing you want as we get closer to spring. Markets will only move quietly and sideways for so long. Then something like a global event or weather can quickly shake things. For multiple reasons, planning will be key this year.

Let’s first talk about the corn supply. Current ending corn stocks of 1.8 billion bushels in 2015 imply that there is ample supply on hand. However, the U.S. stocks-to-usage ratio, which measures the relationship between supply and demand, offers a different picture. At 13.6 percent, the ratio suggests corn stocks are not as abundant as generally perceived. The same holds true for soybeans. The current stocks-to-usage ratio for beans is 12.2 percent. A stocks-to-usage ratio below 10 percent would be bullish for prices.

Another factor to remember is the U.S. dollar has been close to its month-end January 2016 price of approximately 99 since March of 2015. A decrease in the dollar would likely be beneficial for commodity prices. Under this scenario, U.S. grain farmers would become more competitive, resulting in increased demand for U.S. grain, a decrease in U.S. stocks-to-usage ratios, and, ultimately, a gain in price.

As we move into the coming months, the market will key in on weather concern. Take stock of inventory, divide sales and have offers in place to move grain with each possible opportunity. Should the market rally 10 cents, 20 cents or more, have offers in place. The psychological resistance for corn is $4 and beans $9. Anything close to these levels for old and new crop sales should be the goal this year. Remember to have offers in corn, say at $3.92 instead of an even $4, since that level will trigger many different levels of resistance.

The same holds true in beans. Don’t get greedy. Many times, a round numbered offer like $9 won’t get a hit unless the market moves through that area of resistance. Better to have $8.98 on a bounce, rather than holding out for $9 and end up selling at $8.30.

There has been a lot of talk about how a less than perfect growing season could give us a reduction in supply, enough reduction in supply to provide a price rally. Who knows how long El Niño will last and whether La Niña will follow, bringing dry weather to the Grain Belt? The flip side of all this is, if weather is normal and crop size is normal or just trend line, prices will fall. Prices could fall to levels we have not seen in a while, like $3 corn and $7.50 beans as a futures price.

Even though cash flow is tight, this is a year you need to invest in hedging to protect against those lower price levels. Once you have made sales and managed your price risk, and should significant drought occur, you can re-enter the market if necessary with call options. The key is to formulate your plan now while the market is quiet, volatility is low and price ranges are tight. You can do this.

(Source – http://www.agriculture.com/family/women-in-agriculture/marketing/plning-is-key-when-markets-are-quiet_340-ar52338)

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