Be in a Position for Opportunity, Whichever Direction the Market Moves
Following two strong seasons for corn, soybean and wheat prices, marketers are looking nervously ahead to the 2023 season due to recent market turns. Prices have been high and traditionally this has led to increased production. But there’s uncertainty whether prices will remain elevated or begin to slide based on increasing global supplies.
Either way, if prices are at a profitable level for your operation, you shouldn’t just react to the market. Instead, be ready to act when you’re given chances to sell. This doesn’t mean simply panic selling because prices are falling. Rather, look for opportunities to sell at higher prices that often come during these months of seasonal strength by utilizing tools available to you to maximize opportunity and manage risk that come with selling that grain.
In the weeks and months ahead, there are several catalysts that could drive market rallies, according to ADM Crop Risk Specialists Jim Sibbel and Dave Rosenmeyer. Here are a few likely factors that could play a role:
As is the case every year, weather can cause issues with planting progress and crop condition in North America. Some areas of the country remain locked in drought, while others have the potential to be too wet. Watch the weekly crop progress report because extended planting delays or deteriorating crop conditions could drive grain prices higher.
There’s been speculation over planted acreage, and, more specifically, which crops will get the acres. USDA has given us their acreage projections in their annual Ag Outlook report and monthly World Ag Supply and Demand Estimates. But the Prospective Plantings report released March 31 is considered a more definitive number because it relies on a survey of actual farmers. Any surprises in this report could quickly affect prices.
The Black Sea region is an important source of bushels for oilseeds and grains. The war in Ukraine has entered its second year, and developments here have the potential to influence prices – one direction or the other.
Pay attention to local pockets of strength or weakness. It can pay to watch your local markets closely for price opportunities when local supplies get tight.
Capitalizing on Crop Insurance
Another near-term factor to consider is crop insurance projected prices are now set for corn and soybeans. Each farm is different, but it looks like the price will be at or above the cost of production in 2023.
This is important because if producers are short a crop, insurance can help support and cover some of the lost revenue they would have had otherwise. Revenue protection crop insurance provides a guaranteed number of bushels at an established price. This helps provide the confidence needed to contract bushels ahead of time if a shortfall in production limits the ability to deliver. If you would like to know more about how those guarantees work, utilize our crop insurance worksheet or explore Gear 2 of the ADM Shift program.
As a result, Sibbel says you may want to consider a boost to your coverage this year to be in position to market more of your crop. For example, if you’re typically at the 80% coverage level, maybe up it to 85%. Regardless of the level of crop insurance you choose, the real power comes from pairing insurance with forward contract pricing opportunities to capture prices that work for your operation or put you in position to benefit from market strength.
Contracts Based On Your Expectations
If you still hold old crop bushels, then the urgency to sell may be higher than for new crop sales. Futures prices are inverted, meaning nearby months bring higher prices than contracts further out. As a result, the market pays you a premium to sell bushels now. In addition, interest rates have risen substantially and are expected to continue in that direction. This may provide an additional incentive to convert bushels to cash to invest or to pay down debt.
When looking at marketing in 2023, start with your expectation for a return. If prices are hitting your expectations, then make sales that transfer enough risk to make you feel comfortable. But have a range for your selling price, not an exact number. And, as time goes by, if the market does not get to your number, then it might make sense to make some sales.
When selling grain, look at what percent you want to be priced and what type of contract you’ll use. There are many choices, but here are two contracts to consider:
A Minimum Price contract could be considered if you are optimistic about future price direction but still want to lock in a price. This contract allows you to establish a cash price minimum, but if the market rallies you can still participate and add value back to the sale that you made.
If you’re concerned about prices losing ground but still want to benefit from short-term rallies, then a Price Daily™ contract may be appropriate. This contract helps you manage volatility by pricing equal amounts of grain over a customized period. You set the contract parameters that best complement your price targets and objectives, including the opportunity to add a floor to protect your downside.
There are many types of contracts you can utilize to build profitability in 2023. Work with your ADM representative to determine those that will best fit your objectives.
ADM is providing this communication for informational purposes, and it is not a solicitation or offer to purchase or sell commodities. The sources for the information in this communication are believed to be reliable, but ADM does not warrant the accuracy of the information. The information in this communication is subject to change without notice. If applicable, any information and/or recommendations in this communication do not take into account any particular individual’s or company’s objectives or needs, which should be considered before engaging in any commodity transactions based on these recommendations. ADM or its affiliates may hold or take positions for their own accounts that are different from the positions recommended in this communication.