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Understand price versus value of your corn and soybean crops

What happened

In early 2023, futures prices for corn and soybeans for the upcoming crop were trading at levels that could have farmers' mouths watering today. At that time, many growers decided to pass on prices for new crops because the discount compared to the available and stored crop for 2022 was significant. There was an inverted market (near prices higher than expected). Prices reflected tight supply and good demand for the 2022 crop. However, the available value for expected production in 2023 was also historically high despite trading at a discount.

Why this is important

It's important to recognize the difference between price and value. The price is relative to something. In most cases it is measured based on production costs or current prices, that is, at the most current price. A year ago, 2022 cash prices were historically high, offering profits and value for most. At the same time, the deferred futures for 2023 were trading at a discount. By many reports, this created a negative sales incentive. However, the market still offered value. So what is value?

Value is what your commodity brings to the farm in terms of cash flow and potential profits. When value exists, risk-shifting strategies should be considered regardless of price. In the case of 2023, corn futures traded above $6 for months in fall 2022 and early 2023. However, $6 was well below current spot prices. There can be many good reasons why farmers have not sold much in advance. The reversal in prices and the dry weather maps suggested an opportunity for higher prices. Many farmers may now admit that they did not estimate the value that the $6 board price would bring. Was greed part of it? Perhaps, although not as much as the likelihood that good cash flow would create a comfortable atmosphere from 2022 onwards, suggesting that prices would remain stable or improve for the coming crops. Neither happened. The reason for the weaker deferred prices was simple. The market expected lower demand and higher production (both due to high prices). In the end, both happened, leading to a long-term downward trend in prices. Currently, value is provided to those who purchase corn because the cost of producing a bushel of corn is higher than the cost of purchasing a bushel. This pricing scenario can be considered a bargain. Bargains are usually short-lived.

What can you do?

Farmers who produce commodities wear a few hats. You are a producer and marketer. Marketing is always there; it never goes away. Stay alert and watch for opportunities. Many thought the deferred futures price was too low because they were analyzing the price of one crop relative to another. Measure differently each harvest year. When value emerges, take action. Take the time to learn marketing tools so you can use the right tool at the right time for the right reason. Communicate with people who can help you achieve your goals. Ask your advisor to help you figure out what a good value might look like. Then create a strategy to keep the value in your favor.

Editor's note: If you have any questions about this perspective, please contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Disclaimer: The data contained herein is believed to have been obtained from reliable sources, but no guarantee can be given. Persons acting on the basis of this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Trading futures and options involves significant risk of loss and may not be suitable for everyone. Therefore, consider carefully whether such trading is suitable for you given your financial situation. Examples of seasonal price movements or extreme market conditions do not mean that such movements or conditions are or are likely to occur frequently. The seasonal aspects of supply and demand are already taken into account in the forward prices. No claim is made that scenario planning, strategy or discipline guarantees success or profit. Any decisions you make regarding purchasing, selling or holding a futures or options position on this research are solely yours and are in no way endorsed by or attributed to Total Farm Marketing. 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 a publisher. A customer can have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are 100% owned by Stewart-Peterson Group Inc. Unless otherwise stated, the services mentioned are services of Stewart-Peterson Group Inc. Submitted for bid.

About the author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his customers, their success and long-term, fruitful relationships. As senior market consultant and vice president of brokerage solutions, Doherty lives and breathes agricultural marketing. He has a deep understanding of tools and markets, listens and communicates specifically and clearly to ensure customers are satisfied with decisions.

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