I do watch and wonder as grain price bids gyrate, but trend to try and stay somewhat emotionally detached.
One of my favorite pastimes is collecting all the market pundits’ reasoning for price movement. Often, we see similar reasoning as prices go up as for prices going down. This activity is amusing, but not a very productive use of my time.
Not to be outdone by other market observers here is described what I see moving new crop prices:
• U.S. equities are perceived as offering a positive return. This draws investors out of commodities.
• The U.S. dollar has been gaining significant strength since mid-winter. This makes our grains more expensive to nations that import from us.
• The crop is getting planted. This offsets some of the production risk to our end users and makes them feel better about adequate supplies from the coming harvest.
• We are getting regular reports of a stronger housing market, lower jobless claims and robust car sales. All these signals have investors loosening their fascination with hard commodities (gold included) and putting their funds elsewhere.
• Beef feedlot placements continue weak, dairy cow slaughter is stronger than “normal” and swine producers remain mired in market doldrums. These significant consumers of our grain output are reducing demand.
• Energy of all types (oil, natural gas) is under price pressure. The relationship of corn and soybean prices to the energy market has been highly correlated over the past several years.
• Palm oil (and soy oil) is building stocks-on-hand. Adequate supplies of these critical food stuffs are apparently available.
We can list just as many (if not more) observations of why prices “have to get stronger!” However, I ask you to consider this — no one can predict the future. It is up to us as effective business managers to assess the price risks that confront our business(es) and then decide what to do about it.
Guessing on the future may not be the best strategy. As we are offered prices that may cover the cost-of-production, plus a profit, it is up to us as the farm manager to decide to take the price today or speculate it will be better tomorrow.
And then, if the price is better tomorrow — will we take it? Marketing our expected harvest in increments we are comfortable with has proven a useful method of securing profits and also remaining flexible enough to take advantage of any price pops, especially at this stage in the season.
Of course, anything can happen. Anything can happen to put prices through the roof. Anything can happen to drive prices into the basement.
There may be no business that is riskier than farming, and oddly enough we chose this business.
As we get the opportunity, let’s participate in grain marketing educational activities that could enhance our understanding of and comfort with minimizing price risk and maximizing farm net revenue.
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