While the market took a day off this past week for the Martin Luther King holiday, the upward trend has taken few days off in recent weeks.
The reason for the bullish grain market isn’t complicated, according to Iowa State University economist Chad Hart. Over the last six months, the 2020 crop shrunk and demand expanded.
“We ended 2020 in better shape than we started it,” Hart said.
Just as important, 2021 is starting off very well. And most farmers are taking advantage of that situation. Those that aren’t should reconsider, Hart said.
“We can’t let greed get in the way,” Hart said.
Farmers don’t need to sell their old-crop grain right now, but they should at least take advantage of the market to put a floor under it. Whether that means using hedges or put options is up to the producer, but failing to at least put a floor under the market would be a mistake, he said.
And that same idea goes for the 2021 crop. Hart says the opportunity is there for farmers to market some 2021 or even 2022 grain this winter. They may want to use market tools to allow themselves to take advantage of any future market rallies, but the idea of putting a floor under the market when they can do so and lock in healthy profits is a good one.
And those profits are healthy right now. Grain prices are at levels not seen for at least six or seven years. Hart said that is especially timely because last year an estimated 40% of net farm income came from government payments, mostly through ad hoc non-farm bill plans.
No matter who won the presidential election last fall, those payments were likely not going to continue, especially not at those levels. The higher prices allow farmers to make money from the market and should reduce the reliance on ad hoc federal farm payments.
That’s good news for farmers.