The October crop report confirmed that the laws of economics have not been repealed. Keep the price of any commodity too high for too long and people will find a way to use less and/or grow more. This was the sobering result of the USDA report released on Oct. 12.
Without a doubt this is probably not a very popular headline. In my September article I outlined why the odds were very high that the corn and soybean market would peak in September. As I write this in mid-September, it appears that was the case. So let’s assume your neighbor paid no attention to that information and sold nothing and now he’s asking you what to do. Let’s think about what you might tell your neighbor.
Lenders always encourage producers to have a marketing plan, and most producers know they need one. But in years like this, even some of the best mapped out marketing plans have the potential for leading to a road of disappointment.
There is certainly no lack of fundamental changes impacting grain prices that will influence price swings this spring: worldwide economic turmoil, Egypt, Libya and the earthquake in Japan. All of these factors providing extreme unknowns not only to the energy markets, but also to the grain and livestock markets.
Technical market analysis seems to have been less reliable in the last couple of years than the historical norm. There were many flashing lights, however, in the middle of February indicating that there is at least a possibility, and some would say a reasonably high probability, that the corn market peaked in February.
As corn and soybean producers, it’s often important to remember that for every bushel of grain sold, someone has to buy it. Market prices and movements are something like a golf shot. No matter how good or bad it is, it pleases one person and upsets another.
In any industry, profits swing up and down in the short term, but for the ethanol industry the major long-term profitability trend continues to be quite favorable. Growth from this point will not likely be as fast and furious as it was in the previous five years, but growth nonetheless is continuing.
One could argue that soybean prices are shifting to a new plateau. Worldwide demand, primarily China, has driven prices to levels few of us anticipated as recently as this past summer. Just where this new plateau levels off is yet to be seen
With all the news on poor corn yields becoming more evident, it’s typical that grain markets peak when the news is most bullish. There are certainly very few people in the world who are unaware that this year’s corn crop has been disappointing.