It's the season. People with crops in storage are deciding whether to sell them or keep them in the hope that grain futures prices will rise.
what happened
The first notification date for March 2024 grain futures is Thursday, February 29th. This means anyone with a long contract for March grain in the futures market must exit their long position by the close of trading on Wednesday, February 28th or be at risk. of physical delivery.
This also means that farmers who were using reference contracts (based on March 2024 futures contracts) for cash marketing will need to urgently decide whether to reduce the price of their contracts or expand to May 2024 futures. It means that there is. The question ultimately comes down to “Is there any bullish news?”
Corn and soybean futures have been on a steady downward trend since early December, defying the “seasonal trend” of rising markets (typically seen in early winter). Traders are instead focused on large crop withdrawals, with fund traders acting as persistent sellers.
Trading in the coming weeks is likely to be volatile, with the USDA Outlook Forum likely to further strengthen the already negative fundamental outlook. In addition, there will be his three-day weekend when the market will be closed on Monday, February 19, 2024 due to President's Day. Additionally, March grain options are expiring on Friday, February 23rd, and the first notice date for March grain futures is at the end of the month.
To put it bluntly, for grain prices to return to an upward trend, a friendly fundamental catalyst would need to occur to unwind the short positions, which are near record capital. We need a weaker US dollar, a friendly message from the USDA Outlook Forum, and weather issues in Brazil that are hampering second-crop corn production. Still wondering what to do? Let's take a step further and take a closer look at the concept of price or role.
From a marketing perspective
price. If you believe that grain prices will remain flat or continue to fall, it likely makes sense to base your contract on price. This means calling the elevator, taking the current he March 2024 futures price and applying the already fixed criteria. A decision is made and the price of grain is determined.
For many people, the price is not attractive. Some of you may already be thinking, “But what if prices actually go up in the coming weeks!?” If that happens, you may subconsciously feel that you were a fool for setting the price too early.
Don't be afraid. In this case, it may make sense to repossess the property in writing with a call option. For example, if you purchase a call option for July 2024, its expiry date will be June 21, 2024. You pay a one-time option price premium (including fees and charges) and there are no margin calls. It will be nearly four months before we know whether prices will rise because of a potential drought in Brazil, a delay in spring planting in the United States, or a rapid drought in the United States in early summer.
If the futures market rises, you can join in the rise. If the price does not rise, the most you can lose is the cost you paid for the call option. For some, this may be a cheaper option than considering the cost of storage for four months with interest payments.
roll. If you think prices will rise in the coming weeks, consider rolling up your base contract. Most likely, you will roll on his May contract and pay the elevator the difference between the roll fee and the spread between his March contract and his May contract. If the market goes up, you get an increase in futures prices. If prices do not recover, there is a risk that prices will fall further.
Focusing on beans, the spread is currently tight enough at around 5 cents that rolling could be an attractive option. In a basis contract, the roll is subtracted from the basis when the market is in carry and added to the basis when the market is in inverse.
The soybean market is currently in a carry state where 5 cents (plus fees) are subtracted from the contract base when determining roll pricing from March-May futures. Corn futures have “a lot” of carry, with the March-May spread in the roughly 13-cent range.
Corn is where the discussion about rolls and prices really takes place. Some producers are not too excited about current old crop price levels and have indicated that they would like to wait until the situation improves, but to remain open to the risks and opportunities in the market. Keep in mind that 13 cents plus fees is a significant price reduction. If you choose this route, you can purchase an April 2024 corn put option (expiring March 22, 2024) or a May 2024 corn put option (expiring April 26, 2024) at the price Consider managing your risks. This will give you a floor price. Be prepared if the USDA reports more bearishly, if the fund continues to hold and/or build short positions, or if the weather is perfect for corn growing in Brazil.
make up your mind
It's time to take your head out of the sand. We feel it's becoming increasingly important to have a strategy to move the grain forward. Both commodities are on the decline, making holding crops increasingly expensive.
Be prepared for anything. The Fund holds a significant net short position and current market perception remains negative. However, a glimmer of friendly news could spur short covering and a significant correction in prices. However, due to the lack of friendly news, corn and soybean prices are likely to continue in a flat to declining pattern in the near term.
Many price scenarios are likely to unfold in the coming days. Manage your risk. Be prepared for all kinds of surprises. Sit down and do the math to decide which scenario, price or roll, is best for your farm business.
If you have any questions, please feel free to call us.
Contact Naomi Blohm at 800-334-9779 at X (formerly Twitter). @naomiblohm,and [email protected].
Disclaimer: Data contained herein is believed to be from sources reliable but is not guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involves significant risk of loss and is not suitable for everyone. You should therefore carefully consider whether such trading is suitable for you in light of your own financial situation. Instances of seasonal price fluctuations or extreme market conditions are not intended to suggest that such fluctuations or conditions are or are likely to occur. Futures prices already factor in seasonal aspects of supply and demand. No representation is made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you make to buy, sell, or hold futures or options positions based on such research are entirely your own and should not be deemed endorsed or attributed in any way by Total Farm Marketing. yeah. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered as an Introducing Broker with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and equal opportunity provider. Stewart-Peterson Inc. is the publisher. A customer may have ties to all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. Unless otherwise noted, the services referenced are those of Stewart-Peterson Group Inc. Presented for solicitation.
