BOTTOM LINE

I'm writing this column in early November, desperately trying to come up with something bullish to say about either corn or soybeans from current price levels. After several hours of brain cramps, I can't come up with much.

For many reasons, it's very difficult to be bullish on corn.

But that's not what bothers me most about either the corn or soybean market. It's the frustration of sitting back and watching people go through the same cycles of marketing mistakes that I've watched for nearly 30 years — and trying to avoid them myself.

It's like clockwork. After a year of bear markets, the following year corn will be sold too early. And following bull markets, nothing will be sold early the following year. It's human nature that we base this year's marketing decisions on what we did wrong or right last year, even though a market rarely does the same thing two years in a row.

Case in point — the soybean market. The past two years it's paid not to forward sell. The best strategy was to sit back, wait until harvest and sell soybeans off the combine. As much as I hate to admit it, no one has needed marketing help in soybeans for two years in a row; and those of us who have tried to market soybeans would have been better off going fishing for the year.

Years such as the past two, however, are rare. And having two years like this back-to-back is particularly rare. Write it down now — this will be a year when forward pricing of corn and soybeans will pay big dividends.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.

Few Bullish Arguments For Corn

Those who want to be bullish on corn base their arguments on two factors:

  • Ethanol usage is strong. That's true. But total food and seed usage (which includes ethanol) is expected to increase only about 300 million bushels this year, while the crop size increased by 1.2 billion bushels. Hardly a fair trade.

  • World stocks are near all-time historical lows. This would be a good argument if our exports were exploding to help satisfy other countries — but they're not. Even with the weak U.S. dollar, corn export demand is fair at best, relative to world supplies.

However, on the bearish side consider the following:

  • Feed usage is weak. With record high cattle prices, cattle have been coming to market approximately 40 lbs. lighter than a year ago. Late in the feeding period, cattle eat a bunch of corn. Cattle feed usage of corn will be down significantly.

  • Supplies are more than ample. U.S. supplies are much more important than the world supply for determining price. Should exports increase dramatically and draw down U.S. supplies, the argument would reverse. But that has not been the case.

Acreage will likely increase this year. With farmers' experiences this past year on corn yields vs. soybeans yields, plus the encouragement from government programs to plant more corn, it's doubtful corn acres with be lower in 2004.

The Bottom Line: Corn prices are headed back to where they were five years ago. That's when the best marketing strategy was to sell distant futures contracts when they started to trade and wait for the market to come down to the cash price. In this environment, some farmers will opt to do nothing but play the LDP game. That's okay, but it's more profitable to forward sell and then collect the LDP.