Is this the year for Minimum Price Contracts?

With harvest starting, we’ve seen the usual yield reports from all over the country and they are as variable as ever but it seems rare to see one that is worse than expected. I’m sure there are some areas worse than last year but not enough to make a difference in the overall crop size. The hope of a crop issue helping prices increase is quickly fading away. The USDA Crop Report numbers would seem to be closer than most of us would like to believe and every report has dropped the projected corn & bean price for the year by a dime. Now, it will be left to the Funds and their appetite for building a long position in grains. That area of the market has seen some changes as well with Goldman Sachs suffering its worst performance in its commodity hedge fund since it was started in 1999. They’ve been replaced by the Australian bank Macquarie with some help from fewer regulations in Australia. So the Funds presence in the market will not change, just the players.

The USDA Crop Report numbers would seem to be closer than most of us would like to believe and every report has dropped the projected corn & bean price for the year by a dime. Now, it will be left to the Funds and their appetite for building a long position in grains. That area of the market has seen some changes as well with Goldman Sachs suffering its worst performance in its commodity hedge fund since it was started in 1999. They’ve been replaced by the Australian bank Macquarie with some help from fewer regulations in Australia. So the Funds presence in the market will not change, just the players.

Lately the theme has been, just keep trading in a range that has not changed for a while. The good news with that strategy is that we’ve been around 80% or higher of the five-year average on both corn & bean price and not any lower. The five-year average corn price is $4.40 and on September 22nd we closed at $3.54. The corn price has been below that $4.50 price since June of 2014; only touching that in June of 2016. That $4.50 price seems like a lifetime ago but we have actually hit $4.00 on December corn futures three times since May 2017. So based off that, it would seem that $4.50 is going to be a stretch but $4.00 may be attainable in the outlying months, or at least December of 2018 (currently $3.96). This may simply be a good starting point for next year’s crop.

This year may be the year to run with minimum price contracts if we don’t see some rains to replenish the subsoil we used up this year. Using a minimum price contract is a way to ‘not bet the farm’ on theory that the price has to go up…then it doesn’t. Yes, it is price insurance and it has a cost/premium as all insurance does but to cover extreme risk (like a 50 cent market move) yet establish a price floor, get your money upfront, save a point of shrink on corn, and not pay storage, it may be worth it. They are not the cure-all but they’re a good place to invest a percentage of your overall marketing along with your other strategies or selling patterns. Give us a call; our Producer Marketing Group is here to offer guidance.

Thank you for your patronage and be safe this harvest. “No price is too low for a bear or too high for a bull.” – Proverb

 

 

 

 

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