Weather markets blow in and blow out — what’s the grain pricing plan?

Just last week, Chip Flory and Shaun Haney were talking about unlikely market moves and the unpredictability of a weather market, with a discussion on the risk of a sliding market.

This week, Shaun is back again talking weather markets, but this time with Brian Voth, founder of IntelliFARM.

Voth is keen on looking back to look forward, and when it comes to drought years, December corn, and technicals, he’s eyeing up a corn number that is decidedly bearish.

“From a technical standpoint, there are certain patterns on that December corn chart that are actually pointing to like a 3.88 number,” Voth says. If you look back, he says, old highs often become new lows once a transition period ends, and that’s the territory he sees markets heading right now.

Some analysts are pointing to 2012 as an example of how markets could move. “Arguably, the 2012 drought was far worse than what we’re looking at today… when did the markets peak out in 2012?” Voth asks. “The answer is corn peaked out in August of 2012, and beans peaked out in beginning September of 2012. It was a small crop; it was a massive, massive drought. And yet the markets peaked out prior to harvest and never went back to those levels.”

Adding to the bearish case for corn is overall supply, as soybeans have the tighter carryover number, Voth says. Unlike in 2012, when there wasn’t a lot of corn to go around globally, other key growing regions have supply.

“There are other supplies around the world to pick from right now. There’s that marketing saying “short crop, long tail” and that was, back in 2012, exactly what happened — the market rallied up quite substantially early and that essentially curbed demand right there. And the market kind of trailed off the whole rest of the crop year,” he says.

Voth says situations like these are a great time to use marketing tools available to manage downside risk, such as futures and options, as part of a marketing strategy. “It was too risky to necessarily go and sell crop out of the field with the weather the way it was. So again, it worked out as a great strategy for those that have the opportunity or have the accounts. I explain this to farms to as to why I think it’s so important to have that account and expand your marketing opportunities than just selling to an elevator all the time.”

Related:

Falling dominoes and managing downside risk

 

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