US : Rising Corn and Cattle Prices Raise Marketing Risk and Opportunity, Analyst Says
Rising cattle, corn, and wheat prices offer marketing opportunities but carry downside risks. Producers are urged to focus on strategy over speculation, using tools like hedging and forward sales, while maintaining communication to manage volatility and protect profits effectively.
What Happened
In recent weeks, a flurry of activity in commodity markets, with new highs posted in cattle, corn, and wheat, is providing new opportunities for producers to shift risk and take advantage of opportunities. What might be the busiest time of the year may also be the most critical time for marketing. History has told us the corn market can quickly lose value once the spring high price occurs. Cattle prices continue to grind higher, breaking records. Therein, however, lies the risk: The higher a market rallies, the faster a drop can occur. Tight cattle supplies are supportive, yet consumer demand must support higher prices. Wheat prices are finding support as domestic and global weather concerns could impact supply. However, world supplies are presently considered ample, as indicated on last month’s World Agricultural Supply and Demand Estimates (WASDE) report, as world carryout rose 6 million metric tons from expectations.
Why This Is Important
Pricing opportunities, when they occur, are often short-lived. Now is the time to reevaluate what it takes to manage the recent rise in prices. The “why” of a rally can be layered, with many variables that are challenging to understand or outguess. The area of concentration should move away from why the market may be moving and instead shift to strategy. This means working toward a balance of sales and re-ownership. It means new conversations and pushing the pencil to determine the costs (both real and opportunity) of protecting price. Various strategies, such as forward selling, hedge-to-arrive, put option purchases, short futures, or perhaps more advanced option strategies, are all on the table. Finding the right mix of strategies for you and your risk tolerances is key to execution.
What Can You Do?
First, carve out time and dedicate it solely to marketing. This is a challenge in spring and still necessary.
Second, connect with your internal team, and discuss the current markets, your thoughts, and marketing alternatives. This keeps everyone informed and reduces the second-guessing that often occurs in more volatile markets.
Third, communicate with your team outside of the farm operation, which includes your lender, buyers, and suppliers. Write down any questions before you talk so you are not side-tracked. You will be armed with information to communicate with your internal team and make decisions.
Find What Works for You
Work with a professional to find the strategy or strategies best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic.
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Source : Successful Farming
