Should You Sell This Rally? That May Be the Wrong Question

For the last couple of years markets struggled to sustain rallies. Upside was limited. When opportunities showed up, producers had good reason to take them seriously because another chance might not come along anytime soon.

Now the market has changed.

Volatility is back. Corn has rallied sharply. Soybeans have strengthened up quite a bit. Wheat is also in that camp. After spending much of the summer questioning why the market seemed unwilling to acknowledge what was happening in parts of the Corn Belt, money has come pouring back into commodities.

Good news….now what?

What do you do when the market has finally given you something worth protecting, but there may still be considerably more upside ahead?

The answer does not have to be sell or hold.

We are entering September without final answers on acreage, yield or ultimately how large this crop will be. There are still several important reports ahead, and the market is trying to price a crop that remains uncertain.

At the same time, this rally has not come from one clean fundamental story.

Concerns about the western crop have been around for months. The Pro Farmer crop tour brought more attention to some of those issues. Money has moved back into commodities. Inflation-related buying is part of the picture. Geopolitical risk around the Black Sea has added another variable.

Put all of that together and you get a market capable of moving very quickly.

But fast-moving markets create risk in both directions.

If prices continue higher, selling too aggressively now could leave significant opportunity on the table. If the market has simply gotten ahead of the fundamentals, doing nothing could allow a valuable marketing opportunity to disappear.

That is why this is not necessarily a binary decision.

There Is a Lot of Ground Between Selling and Doing Nothing

Producers tend to think about marketing in two buckets.

Sell the grain.

Or keep the grain.

There are times when that simplicity works. This may not be one of them.

Risk-management tools can create a middle ground where a producer protects a portion of the value the market has already created while maintaining exposure to additional upside.

A put option is the simplest example. Rather than selling the physical grain and establishing the final price, a producer can pay for downside protection while leaving the cash grain unsold. If the market continues higher, the grain can still participate in that move. If the market falls, the option provides protection against some of that decline.

There is a cost for that flexibility, and that cost matters. But so does the environment in which you are buying it.

Paying for upside flexibility in a market with very little upside potential is one thing. Paying for it when major crop questions remain unanswered is something entirely different.

Stop Trying to Make One Decision for the Whole Crop

There is another problem with the sell-or-hold mentality: it assumes every bushel needs the same strategy.

It doesn’t.

A producer might decide that part of the crop should simply be sold because current values work for the operation. Another portion might intentionally remain unpriced into next year. The bushels in between can be managed differently, using tools that protect downside risk without completely eliminating upside potential.

That diversification matters because nobody knows exactly where this market is going.

You do not need to make one heroic call at the top.

You need a marketing plan that can survive being wrong.

That means knowing your costs, understanding your storage situation, considering cash-flow needs and deciding how much risk the operation can comfortably carry. A producer without storage may need a completely different strategy from someone who can hold grain well into next year. Someone who wants no exposure to margin calls has different choices from someone whose operation and lender are comfortable using futures.

The right question becomes less about predicting price and more about determining which risks you are willing to own.

Wheat Is Showing Why You Need to Look Beyond Price

Wheat provides another good example of why the futures price alone does not tell the whole story.

The Black Sea situation has created legitimate uncertainty around global grain movement. That matters in wheat because wheat is such an important global food staple.

But there is a difference between a market rallying because traders anticipate tighter supplies and a market where physical buyers are actually scrambling to secure grain.

That distinction matters.

During historic wheat rallies, physical demand eventually confirmed the story. Buyers showed up. Export activity accelerated. Spreads reflected scarcity. The market was not simply anticipating a shortage. The shortage began showing itself throughout the physical market.

We are not necessarily seeing that same confirmation today.

That does not mean wheat cannot continue higher. It means producers and traders should watch what happens underneath the headline price.

Are buyers actually showing up?

What is basis doing?

What are the spreads telling us?

Those signals can help determine whether a rally is being driven primarily by investment money and expectations or whether genuine physical tightness is developing.

Soybeans May Have a Stronger Story Underneath

Soybeans present another interesting contrast.

The longer-term story has improved as domestic biofuel demand becomes increasingly important. Basis and spreads have also shown signs of a tighter physical market than headline supply estimates might suggest.

That gives the soybean rally some fundamental support.

But a fundamentally bullish market can still move too far, too quickly.

After a strong run, markets often need time to digest the move. That does not automatically change the longer-term outlook. It simply means there is a difference between believing a market has additional upside over the coming months and believing it needs to go straight up today.

Being bullish does not mean ignoring downside risk.

And protecting downside risk does not mean you have suddenly become bearish.

Good Markets Require More Decisions, Not Fewer

For the last couple of years, many producers had fewer attractive choices because the market simply was not offering much.

That is changing.

There are opportunities again. There is volatility again. There are unusual spreads developing, changing basis relationships and multiple ways to manage the same underlying risk.

That is exciting, but it also makes the job more complicated.

The temptation after a big rally is to obsess over whether this is the high. That is usually an impossible question to answer consistently.

A better approach is to ask:

What would hurt my operation more from here?

Would you regret selling too much if the rally continues?

Would you regret doing nothing if the market gives the move back?

Do current values already work for part of your crop?

Can you protect another portion while maintaining upside?

Those are questions you can actually build a strategy around.

Final Thoughts

This is the kind of market producers have been waiting for.

But getting the rally was only the first part.

Now comes the harder job of deciding how much of it to protect without automatically removing yourself from whatever comes next.

There are still major questions surrounding this crop. The market has moved quickly. Demand will need to justify higher prices eventually, and the physical markets will provide important clues about whether these moves have staying power.

That makes this a good time to stop thinking entirely in terms of selling or holding.

Sell some when it makes sense. Protect some when it makes sense. Leave some flexibility when the potential justifies it.

You do not have to know exactly where the market is going.

You need a plan for what you will do if it goes either way.

Want the deeper discussion? 

Listen to this week’s Hedge Heads, “Should You Sell This Rally? You’re Asking the Wrong Question,” at thehedgeheads.com/podcast.

You can also find Hedge Heads on Apple Podcasts and Spotify.

Commodity futures and options involve substantial risk of loss and are not suitable for everyone. The information above reflects opinions and discussion for educational purposes only and should not be considered trading advice.