It is time to pull into harbour with a cargo of good prices or batten the hatches for a short but possibly brisk squall, say farm marketing advisers.
“Farmers should be taking advantage of these prices we’re seeing here now. Take advantage of the rally to get some hedges on because the market is vulnerable to a correction,” said David Drozd of Ag-Chieve in Winnipeg.
Many advisers believe most crop prices can climb higher yet, but that won’t happen until after Christmas. The period from now until then is fraught with danger.
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Ken Ball of Union Securities said his clients have sold most of what they need to meet their fall financial commitments, but rocketing prices for feed grain mean farmers should consider taking some of that money off the table, even if they intended to do the rest of their marketing after Christmas.
“Prices are now getting high enough, like in feed wheat and barley, that no matter how bullish you are in the future, you’ve got to be at least alert that these prices don’t get away on us,” said Ball.
“The market seems absolutely, 100 percent, dead certain that everything has to go considerably higher even yet. Whenever the marketplace seems that certain I always get a little worried. The market isn’t usually kind enough to make everybody happy.”
Most advisers expect the present rally to either level off or fall in the short term. There have been virtually no predictions of a big slump, but a correction or consolidation could hurt a farmer who needs to sell before New Years but hasn’t done so yet.
Drozd said the danger in futures markets comes from the heavy open interest in the December futures contracts for most commodities. As Nov. 30 approaches, which is the first day that contract holders can be forced to accept delivery of grain represented in the contract, there is a good chance that some of the “long” position holders will try to reduce their positions, pushing prices down in the process.
Randy Strychar of Ag Commodity Research said speculative commodity funds are holding a lot of long positions and probably won’t roll them all into the March contract before Nov. 30.
“I can’t believe how long the funds have become in oats,” said Strychar.
Drozd said it is too early to tell whether a correction is occurring. But in contracts like Chicago oats, there’s potential for both upward and downward swings in price as short commercials and long commodity funds square off.
One side will have to blink.
“It’s always tough (to see) who’s going to win that battle, but there will be a battle going forward from now until the end of November,” said Drozd.
Farmers often are reluctant to sell their crops when prices are rising because they hope they’ll climb further, but most advisers say today’s prices could fall.
“This is a great time if farmers have been wondering whether to get some grain sold,” said Drozd.
“I’m trying to caution farmers not to get caught selling grain at the bottom of a correction if they have bills to pay at the beginning of December.”
