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Analyst sees profit with right management

Analyst sees profit with right management

Grain with money overlay

It’s still a weather market.

“First and foremost, this is a weather market right now,” says Don Roose, president of U.S. Commodities in West Des Moines.

Since about the second week of December, the grain trade has been watching weather conditions in South America, and that has meant a weather-dominated market discussion.

But Roose cautions that weather markets generally last three to five weeks, and this market is about at that point. That means that for many farmers, this could be an opportune moment to market some corn or soybeans.

The second thing to remember about this market is that while farmers are deeply concerned about rising input costs this winter, they can still lock in prices for old-crop and new-crop grain that should be above their cost of production even with the higher input costs, he says.

That can obviously vary because each farmer has a different break-even based on a wide number of variables. But most farmers can lock in profitable sales for 2022 right now, Roose says. That’s not a bad thing.

What it really means is that this is a time when it is possible to do some form of risk management. A producer can lock in a profitable level on a percentage of the crop. Such moves may make it easier to line up operating loans or simply to reduce the risk of a price decline that could come later in the season, he says.

There are a number of strategies farmers could use to deal with today’s situation, Roose says. They could use market tools such as call spreads. They could try to set a floor under their market and leave themselves an opportunity to still catch on if the market should rise.

The key is that with relatively good commodity prices but high input costs, this is a year where management will matter but where farmers should be still be able to turn a profit, he says.

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Gene Lucht is public affairs editor for Iowa Farmer Today, Missouri Farmer Today and Illinois Farmer Today.

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