We are in a weather market that is affecting, for the most part, soybean and wheat prices.
Unfortunately for producers in Tennessee, the Mid-South and Southeast, most of the just-harvested wheat, I would guess, has already been sold or priced. So from that standpoint the rally in the wheat market may not help the 2017 crop. I would note that the rally in the nearby contracts has eased but does bear watching or action for the July 2018 contracts for next year’s production.
Cash wheat prices for 2018 can be contracted currently at $5.65 per bushel, or easily a dollar above what many received off-the-combine this year. If this price holds, wheat acreage in Tennessee would be expected to increase for 2018. Dedicated wheat producers will want to look closely at starting pricing their wheat crop for next year.
Soybeans have had a rollercoaster ride as of late but are up 55 cents since the April USDA reports with current pricing in West Tennessee around $10.05 per bushel for October delivery. This certainly is a positive for producers who were using $9 - $9.50 in their budgets and cash-flow plans constructed earlier in the year. However, generally the weather is most important for soybeans in August and early September, so the weather market could be a little early for soybeans.
Most market analysts are advising to market in small increments during this current weather rally. I think that is sound advice as weather markets can rally higher than expected and booking in smaller increments can allow a producer to capture more of the upside. The downside is that there is projected, as of the July 12 USDA reports, 460 million bushels of ending soybean stocks for the 2017/18 marketing year. This level is more indicative of a sub-$9 soybean market or a $9.50 market.
The August 12 USDA report will give us the first glimpse of what yields might be for this production year and can give us a look at whether we are in a real weather market. Until then, producers may want to consider pricing on rallies and/or explore buying a Put Option for downside protection. For example, as of July 19, a $10.20 Put that expires October 27 costs 50 cents a bushel and sets a $9.70 bushel futures floor. That is probably higher than some producer’s breakeven and more than what was used in early projections. This strategy would protect the downside but still leave some upside. Of course, to use a strategy like this, a producer would have to open up a brokerage account and pay the put option premium up front. I encourage producers interested in this and even more advanced marketing strategies to learn more about them and have a good understanding of what is being put in place and or committed.
We don’t need to let the soybean market get away from us without having priced or protected a pretty good portion of the crop. I would tend to want to see producers have priced on the cash market what they are comfortable with and use Put Options on another portion or the remainder of the crop. The total percent priced would depend on how much price risk a producer can take. The less risk a producer can stand the more should be priced.
I continue to think that that this is a pivotal year for many producers after enduring cash flow shortfalls the last year or two. Keep in contact with your lender and suppliers as you go through the year so there will not be any surprises. Contact your County Extension office for any questions or trouble shooting any production problems. For farm financial management and marketing assistance, in Tennessee contact your County Extension office or Area Specialist-Farm Management or call the MANAGEment Information line at 1-800-345-0561. Other states also can offer assistance through their local Extension office.