Farmers who have stored their crops are now making decisions whether to sell their produce or store it for a future price increase in grain futures. The first notice day for March 2024 grain futures will be on Thursday, February 29th. The choice rests upon the current market trends and the farmer’s expectations for future price changes.
Currently, corn and soybean futures are in a steady downtrend since the beginning of December. This trend is based on traders’ focus on large crop carryout amounts, with fund traders being relentless sellers. Therefore, traders’ behavior is eclipsing the typically seen early winter market rally.
The coming weeks of trading are expected to be volatile given the USDA Outlook Forum, a three-day holiday weekend (Presidents Day), March grain option expiration on Friday, February 23rd and the first notice day for March grain futures at the end of the month, and any unexpected weather conditions in key crop-production regions.
Any upturn in grain prices will require a promising fundamental catalyst. This could be a drop in the U.S. Dollar, a positive message from the USDA Outlook Forum, or weather disturbances in Brazil affecting the production of the second crop corn.
Farmers need to decide whether they want to “price” or “roll” on their futures.
The “price” strategy entails that the farmer sells their grains at the current market price with the expectation that prices will remain stable or decrease. This includes calling the elevator, taking the current March 2024 futures price, and applying the already set basis. However, they can also choose to reown on paper with a call option to mitigate any potential disadvantages if prices rise unexpectedly over the coming weeks.
The “roll” strategy is an alternative for farmers who anticipate a price rally in the weeks ahead. Here, they roll their basis contract and pay the elevator a fee to roll and the spread difference between the March and May contracts.
The decision between the options largely depends on individual expectations and the specific circumstances relating to crop varieties. Beans, for example, have a narrow spread of around 5 cents, making rolling an attractive option. For corn, with a larger carry and spread of 13 cents on the March to May contracts, the decision becomes more complex.
The key takeaway from this situation is the importance of having a strategy for grain marketing. The current trend points towards lower prices for both commodities, making it increasingly expensive to hold onto crops.
