Does this bull have a long tail?

In recent weeks, the corn and wheat markets have experienced price declines, with wheat a big surprise.

Wheat futures have now moved to their lowest prices of the calendar year, even lower than before the war in Ukraine. Despite the war and drought conditions in the U.S. and Europe this past year, market forces have disassociated supply concerns with a bigger-picture perspective.

That bigger-picture perspective is thoughts that bullish news is unlikely, and high prices will have cured themselves by decreasing demand and increasing future supplies.

The same may be said for the corn market. A higher-valued dollar in 2022 counters tight supply. Exports remain concerningly low, and it appears importing countries remain hand-to-mouth in hopes of future price declines. Managed money is net short wheat and moving out of corn.

The key to price movement in recent weeks (and likely in the weeks ahead) is weather. Namely, Brazilian weather, where record crops are likely unless (you guessed it) weather hinders production.

Unlike a year ago when a La Nina weather pattern was strengthening, causing drought conditions in Brazil, the opposite is said to be true. Forecasters appear aligned on the outlook, suggesting La Nina is weakening and will continue to do so through December and January.

Translation to traders: little weather concerns for crop production in Brazil.

Argentina (currently dry) should see an increased chance of precipitation in the weeks ahead. A growing confidence that weather will produce big crops in the Southern Hemisphere gives traders fodder to either exit long positions or add to shorts already in place.

While the U.S. farmer is a slow seller of stored crops and the 2023 crop, a near-perfect storm of negativity beyond South American weather, has pressured prices. In recent weeks, weaker energy prices, problems moving grain on the Mississippi (U.S. prices at the Gulf are higher than other exporting countries), and less-than-hoped-for EPA biofuels initiatives are leaving bullish traders confused.

The market seems focused on the idea that tight supply numbers have peaked and that, moving forward, end users will continue to buy as needed.

However, weather and outlooks change. While it is probably a good practice to assume normal crops until proven otherwise, it is also wise to be prepared for change. Several weeks ago, as the bulk of farmers moved past harvest, there was a view it would just be a matter of time before corn revisited $7.50 and wheat $10.00. Tight supplies could certainly warrant this outlook to yet have merit, however, for now, it is not likely. The trend is lower in wheat and turning lower for corn. From a marketing perspective, anticipate the shift to negative has occurred and you might have to shift your approach from store-and-hope to sell-and-re-own.

Consider being light on cash and long on fixed-risked call options or call option strategies. If you have not started new crop sales, consider getting started.

The old saying is “bull markets have long tails.” That suggests that, once a bull market ends, prices trend lower for a long time.

Hope that your first sales are the worst, and that you can sell more later at a higher price. If the market does not bounce back, the early sales will be important to help build a higher average price, should prices decline. Act with a strategic balance of sales and ownership. This way, you will manage the market movement rather than the market managing you.

Before you take any action, make sure you understand the risks and rewards involved. Talk to your marketing professional to learn of strategies that will work best for your operation.

Editor's Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.