The end of summer marks the beginning of intense speculation and commodity market price tracking focusing on what futures prices will do for Fall planted crops. Farmers and other buyers of commodities use the futures to hedge against the uncertainty and risk associated with fluctuations in the price of the commodity they are selling.
In futures markets, participants buy and sell futures for a number of commodities. The futures contract is a specific price and specific date (sometime in the future) for a given commodity. A farmer may want to purchase a futures contract when they anticipate the price for a given commodity to be increasing in the future. A farmer may also want to purchase a futures contract because they need to sell goods in the future and they want to be able to count on selling those goods at a specific price (determined now).
The current (active) crops that are involved in the futures market for Fall are wheat, barley and canola. September 15th, 2011 marked the start of what the Risk Management Agency (RMA) and Insurance companies call the Discovery Period. The Discovery period is a 30-day tracking of futures prices on various markets including the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBT).
At the end of the Discovery Period, the RMA issues an Approved Price for active crops and this price is used by farmers and agents to determine what plans and levels of insurance they elect for the upcoming crop year. October 15, 2011 is the estimated date that the RMA will release approved prices for wheat and barley for the 2012 crop year.
Factor all these together and a farmer has many decisions to make. Not only costs associated with prepping, planting, irrigating and harvesting the crop, but also the price now, the price you may receive in the future, and how much you’re willing to risk that those changes may or may not occur. Throw in Mother Nature and fluctuations in the cost of diesel fuel and you’ve created a perfect storm.
As always, Scythe & Spade is up for the challenge and ready to help you navigate through these factors to help make 2012 another fruitful year.
P.S. An excellent resource for commodity market price tracking is www.barcharts.com
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Posted by: commodities market | January 21, 2012 at 04:36 AM