Harvest season is underway in some pockets of the Midwest, and for producers looking to lock in profits, a lot could change very quickly in the markets.
Mike Zuzolo of Global Commodity Analytics suggested that farmers who are making sales straight off the combine should lock in some cash quickly if possible.
“Off-the-combine 2020 cash sales are recommended at the $3.80 futures level this week, for 25% of what you need to sell,” he said. “The quarterly grain stocks report will be out (Sept. 30) and I’d like to get most of, if not all, the off-combine cash sales made by the time it is issued.”
Zuzolo said he has seen increasing basis prices in particular areas of Illinois and Indiana, which is expected due to the dry conditions and smaller crops experienced by producers in those areas. With no future price guaranteed, he suggests taking advantage when possible. For areas where basis hasn’t improved, hedging may be the best bet.
“In these areas where the basis is tightening … go ahead and use the forward contract,” Zuzolo suggested. “As for areas where the basis hasn’t narrowed, you may want to hedge the futures only, as long as the cost isn’t prohibitive and your profitability isn’t eaten up.”
He is also keeping an eye on politics in Asia, as China and India are seeing increased tensions, and the relationship between the U.S. and China continues to be scrutinized. While these are issues that don’t have a direct relation to crop prices, Zuzolo noted that it makes the recent rallies in Chinese corn and soy prices more interesting.
“As is so often the case, when the market is rallying, we want to naturally let it rally because we don’t know if it’s going to be another three to five years before one comes along,” he said.
He noted that China may also be waiting to see what happens with the upcoming U.S. presidential election before deciding on its next move.
“I continue to have the mindset that — analytically speaking — China is less likely to disrupt the world order if President Trump wins a second term,” Zuzolo said. “Some disagree with this, but we have to realize that China is trying to make their currency the new U.S. dollar in Asia especially. I don’t believe they want to take on President Trump head on.”