Not too many years ago, agriculture seemed to be the only part of our economy that knew the word volatility.
More recently, it does my heart good to listen to most every faction of the economy complain about managing risk in a volatile market place.
“It’s about time!” my spouse is tired of hearing me mumble as I surf my early morning financial data sources. Who didn’t see a housing bubble that made you wonder when it might end? Who hasn’t questioned a top in energy markets? How cheap would a car manufacture have to get before prices would recover? I ask you to explain to me how agriculture is any different. It goes up. It goes down.
The challenge for me is timing. The “When will it go down/up?” is much more difficult for me to come to grips with as I help producers decide what might be a reasonable marketing strategy.
As a way to modify the stress of hitting market highs I am now much more comfortable with capturing a price opportunity when it appears profitable. Pieces at a time, not all at once.
Somebody said it is difficult to go broke when you are making a profit (no matter how small). Of course, the real challenge then becomes how to insulate my ego as a neighbor or relative tells of their great decision that I missed because of this quirk in my personality. It helps if I can recall the poor decisions this same person has also made, but not much.
Additionally, in my gut I do believe there is no one or no group that has the capacity to move markets. There is no conspiracy. Sure, if China cancels an order prices may shift some, but not very far and typically, not for very long. Things do happen.
My point is that instead of identifying villains in the agriculture market I prefer to spend energy on understanding my break-even points. This serves at least two functions: 1.) I can better decide if a price is “good enough”, 2.) I can spend some time managing my costs.
So, where does this leave us? We are well into/past the historical point of seasonal grain price deterioration. The opportunities for a significant and lasting price spike may be quite limited between today and our 2012 harvests.
Yes, the growing global population has to eat. Yes, 2011 crop carry-over is very, very tight. However, we are only a couple months away from what could be the largest harvest in the history of the world.
Long-term I am quite optimistic for those producing food for the hungry. I know I sure like to eat. Short-term I am hoping we have some of our anticipated 2012 crop yields priced already.