February 2, 2021
What’s your first move when grain prices rally? Joe Barker, director of commercial brokerage for CHS Hedging, says you should start working backwards.
What’s your first move when grain prices rally? Joe Barker, director of commercial brokerage for CHS Hedging, says you should start working backwards.
“Rising grain prices are a good time to think about objectives and conduct a profitability analysis,” says Barker. “Farmers should determine the revenue numbers they are trying to hit, then start marketing towards that number in order to finance their operation and meet their family needs.”
Barker says a perfect storm of supply and demand issues set the recent grain price rally in motion.
“There’s a lot of pent-up demand from before trade agreements were established, so we have to backfill very strong demand from Asia,” explains Barker. “The derecho that swept through the Midwest in August caused more damage than people expected. And it looks like Brazil could have a good crop, but it’s three weeks behind, so that’s three additional weeks of demand for U.S. corn and soybeans.”
As for what’s next, Barker believes this level of unpredictability will continue.
“We appear to be in a period of increased volatility, at least until the USDA Agricultural Outlook Forum in February and likely into the March USDA Prospective Plantings reports and quarterly stocks numbers,” says Barker. “Nobody knows what the weather will bring, but we can already see significant drought conditions, especially in the western Corn Belt.
“Farmers should be prepared for the implications prolonged volatility could have on their hedging programs. They need to consider if they have the cash flow to stomach price fluctuations and how crop insurance products will affect profitability. This is not the type of year to put all of their eggs in one basket, so they should stay focused on their individual profitability and work with trusted advisors to make sure they have a plan that works for them.”
