Shurley: More Positives than Negatives in the Price March Upward
October 18, 2021 December futures peaked to close at almost $1.12 on Oct. 7. This was followed by four consecutive lower days to just under $1.04 on Oct. 13. On Oct 14, we had a big rally – up 324 points for the day and back at just over $1.07. Today (Oct. 15), December was up earlier then down most of the day but looks like it will close up moderately.
Some of the shine on the Oct. 7 high has gone, but price is still very strong, and growers may want to consider taking advantage a little or a lot—depending on the degree to which you are already priced and how comfortable you are with knowing what size crop you have.
Could price go back higher? Yes. Could prices weaken? Yes. But I’m not sure it’s worth risking it in your cash position with price already as high as it is. Maybe think about pocketing the cash and taking your risk on paper with Options.
The October USDA supply/demand numbers were both good and bad as far as impacting price direction goes. In summary:
- The projected 2021 U.S. crop was lowered 500,000 bales due to a reduction in the expected U.S. average yield.
- Projected U.S. exports for the 2021 crop year were unchanged at 15.5 million bales.
- World production for 2021 was raised 700,000 bales. India was lowered and China was unchanged from the September estimate.
- World Use/demand was lowered 740,000 bales – a 1 million-bale decline in China but increases for Turkey and Pakistan.
The export report for the week ending Oct. 7 was weak and disappointing. But, at the end of the day, it looks like the market shook off the disappointing numbers. The report showed that sales were only 158,000 bales and shipments were only 109,000 bales. Sales and shipment to China destinations were almost nonexistent. Biggest sales destinations were to Turkey and Mexico.
With this week’s monthly USDA numbers showing a drop in Use from the September estimate and now with a weak export report, these are not what the market wanted to see, but it’s encouraging that prices were up for the day. The market also has to factor in the lowered outlook for the U.S. crop.
It’s very early, but is it time to begin thinking about pricing the 2022 crop? December 2022 is currently just over 90 cents. After seeing this year’s crop go from 80 cents to, so far, almost $1.12 – and many farmers probably began their pricing on the lower end of that – it’s tempting to wait so you don’t get disappointed by pricing early again. You can’t blame the grower for this thinking.
But December 2022 is already 20 cents above where December 2021 was this time last year. To realize another 40% increase (equivalent to this year’s road from 80 cents to 112), would put us at $1.26.
Because it is so early, anything seems possible. Who’s to say 2022 couldn’t be another 2021? We also know that costs are high and continue to increase, and the farmer needs every bit of high price possible. Not capturing at least some of the highest possible price on at least some portion of the crop could be a financial hardship.
So, the grower has to decide when to start, at what price, and how to do it. How much price risk are you willing to take? There are no easy or perfect answers.
Some growers have already priced a little of next year’s expected production at 90 cents. These growers – and more will likely join them – will price more when they have an opportunity at 95 cents.
If the 2022 crop price stays very good into winter and spring, it seems likely that acres here and abroad will increase next year. If that is realized and higher production also occurs, demand/Use will need to continue to be strong and grow (and the result being good U.S. exports) to keep prices where we want them to be and where they need to be for the grower.
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