Moving targets: Advisers see lack of market enthusiasm

Market advisers say that with low prices and uncertainty in grain and cattle markets, and with late planting, farmers can avoid the marketing chores, but that they can benefit by stayting focused in June and July when volatility can provide profits.

John J. Heber owns Redfield Investment Services, Inc., Redfield, S.D., says some farmer-clients are avoiding making grain trades because of the general confusion in the market, and low potential returns. Photo taken May 15, 2020, at Redfield, S.D. Mikkel Pates / Agweek

REDFIELD, S.D. — Lackluster marketing news can make farmers turn from the topic, but commodity advisers say it can pay to stay focused and peer into the abyss.

John J. Heber, 69, farmed and ranched through the 1970s until 1987, when he started Redfield Investment Services Inc., Redfield, S.D. The company works with farmers in grain marketing. He works with a group of associates in South Dakota, southern Minnesota, and Iowa. The group of seven brokers have 230 clients, some with 30,000 acres. For nearly a year, he’s working with Indigo Marketplace of Nashville and Boston, a company set up to buy grain from producers directly, without locking in the basis.

Different farmers have different risk-tolerance, which is one of the key factors them, Heber says.

“Right now many farmers they’re sitting on their hands as far as cash grain marketing," he says.

Most of the prices for cattle, and grain, are lower than the cost of production. They have crop insurance guarantees behind them, which reduces their incentive to market grain, he says, but the game is about “who can produce the most and lose the least amount right now.”


More volatility

“With more volatility in a market, there’s more risk,” Haber said. “A lot of our producers use options instead of outright futures positions. . . . We do several different strategies — vertical put-spreads, vertical call-spreads, to three-way (selling a call above the market, buying a put at the market or close to it, and selling a put below the market).”

It’s gotten more expensive to do these trades.

“With the risk and the volatility in the market, the risk goes up,” he said. “Option premiums go up. Initial margins go up. And people walk away from the market.”

In the grain markets, with the crop insurance program as it is today, farmers have price floors set for fall delivery.

“We also have several customers who are doing very little because the people, per se, in northeast South Dakota, parts of Minnesota and North Dakota had been in a precarious situation for prevented planting, but now some of that has dried out and they’ve planted.”

Ethanol is a demand-driven market for the region’s corn, and many ethanol plants are shut down or running at reduced levels.

About half of Heber’s clients are cattle producers. Cattle producers have been dealing with adverse prices. He helps some clients with marketing ideas, often trying to help feeder cattle producers to get vertical put-spreads.

In the past, a feeder cattle option that would $2 per hundredweight. Today, a current strike option in August or September is going to be $8 or $9 per hundredweight.


He opposes setting percentage figures that packers must trade in the open market.

“The packer needs a profit — he has huge expenses,” Heber says. “But we have to narrow this down a little bit.”

Pick a price

Frayne Olson, a North Dakota State University Extension Service, grain marketing specialist, says when the market situation gets “so jumbled,” that it’s tempting to focus on production.

Marketing decisions are more uncertain when production levels are uncertain with prevented-planting insurance.

“What are the yields going to be, specifically if it’s put in the ground late?” Olson said. “I think there’s some market-avoidance.”

Olson said recent reviews of market conditions indicate that the volatility in grain prices in June and July can produce higher-level profit opportunities.

“For those who are paying attention and have a general plan in place, and have a marketing consultant helping them watch, they can take advantage and that will help on the bottom line,” he said.

The market rallies he’s talking about usually build up over several days or even weeks. He urges farmers to pick a pricing point and not simply say they’ll sell when the price is “higher.”


There is a trap of shifting into a “greed mode” of trying to pick the top of a rally.

“If I am above my cost of production, making a margin, I have to give strong consideration to making some sales,” he said.

Despite the uncertainty, Heber thinks the future for agriculture is “extremely bright,” using the simple, eternal market summary: “Everybody in the world is still going to eat.”

John J. Heber owns Redfield Investment Services, Inc., Redfield, S.D., which helps farmer-clients with grain marketing decisions, among other things. Photo taken May 15, 2020, at Redfield, S.D. Mikkel Pates / Agweek

Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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