what happened
There's an old saying in trading: “Bull markets have a long tail.” This means that after the price reaches its peak, the price gradually declines over a long period of time. This is especially true for commodities, where high prices tend to be offset by lower demand and increased production.
In 2020, the corn market began to rise on the basis of improving demand and tight global inventories. The 2019 crop was set for an upswing due to a cold, wet spring and late planting, as well as a light test weight of corn at harvest, resulting in lower yields. Then a drought occurred in Brazil, resulting in a shortage of soybean crops and soaring prices. This was followed by a significant increase in energy prices due to supply shortages and increased uncertainty in early 2022, when Russia invaded Ukraine.
Traders went on the offensive and end users became active buyers to ensure availability. By late spring 2022, volatility was high and prices for most row crops had peaked. The beginning of a long-term price decline was developing. History tends to repeat itself. Over the past few years, prices for corn, soybeans, and wheat have steadily declined, although they often fluctuate.
Why is this important?
The market responded to high prices by increasing production, and global production increased. End-users and speculators were perceptively aware that supply was increasing and was now sufficient. As noted in the “Weekly Commitments of Commodity Futures Trading Commission Traders” report, managed funds had accumulated record short positions.
In this environment of increasing supply, while demand remains strong, buyers' approaches are changing. Buyers who are willing to pay a higher price to ensure they get the product will buy on demand. This is called just-in-time inventory.
A possible contributing factor to this buying approach over the past year is the sharp rise in interest rates. For more than a few decades, interest rates were low enough that the cost of holding inventory was not significant. Recently, my thinking has changed. If producers can bear the burden of storing their crops in bins, why buy and store them in advance or pay storage fees?
Global demand for grains and oilseeds is increasing. Resetting to a lower price benefits end users. But there's little reason to expect buyers to move away from just-in-time inventory in the coming months. A weather event would likely be needed to push prices significantly higher and create an environment where end users and speculators aggressively chase prices.
For the foreseeable future, any price increase, even if modest, should be viewed as a selling opportunity going forward, including in 2025. The December 2025 corn contract is trading near $4.90, with USDA's long-term baseline forecast at $4.30. November soybeans are trading around $11.75, which is also currently above the average 2025 price forecast of $10.25.
What can you do?
Spend time planning an acceptable price to start selling in 2025. Another old saying is, “Hope your worst sale is your first.” This may be a good approach to apply in your planning. As a result, you sold the product before the price rose. And if a price spike occurs, you have the opportunity to build a higher average price. Your best guess is to calculate the cost of growing your crop one year from now. Making generalized assumptions helps you plan the purchase of raw materials and the sale of products (products) in your long-term marketing strategy.
The key is to stay alert and let those in your key management circle, including your family, vendors, and buyers, know your goals and what you want to accomplish. If you ask for their opinion or help, they'll likely be happy to oblige.
Editor's note: If you have any questions about this aspect, please feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Disclaimer: The data contained herein is believed to be from sources reliable but cannot be 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 do not imply 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.
About the author: With 30 years of wisdom at Total Farm Marketing and a following across the grain belt, Brian Doherty has a deep passion for clients, their success, and long-term, rewarding relationships. Dougherty is a senior marketer.He is involved in Farm Marketing as Vice President of Advisor and Brokerage Solutions. He has a deep understanding of tools and markets, and he listens and communicates purposefully and clearly to help clients understand their decisions.
