After 30 years of experience in grain marketing, I've never seen a market where people's emotions have run as high as they are now. Looking back, 1988 was certainly emotional if you were in one of the drought-stricken areas. And 1996 was extremely emotional if you were a livestock producer at risk of running out of corn.
Today's volatility is an obvious result of the large expansion of the ethanol industry and the influence of commodity and index funds.
Grain merchandisers everywhere tell me they have more corn already purchased from now through this fall than ever by this time in history. A large portion of it is booked at between $2.80 and $3/bu. There's even a large quantity of corn presold for fall 2008.
Why have producers been so aggressive? Simple — when corn was in the high $2 range, it looked like a “good” price and producers make money at that price. In all major bull markets in history, too much grain was always sold too early.
Someone once said, “Those who brood over their mistakes almost always miss the next opportunity.” Learn from the past, but don't dwell on it.
The diagram below gives a more vivid example of the ingredients necessary for good market decision-making. While some people may think that having the right information is the only important thing, it only helps if you know what to do with it. There's an old joke in this business: “If God Himself guaranteed all farmers exactly what was going to happen in a market, 90% would still wait to see if He was right.”
I'm concerned that many producers will miss good marketing opportunities in the next three months simply because they sold grain “too early” and are now afraid to sell any more. Know when to let the old crop go and concentrate on the new crop.
By the time February is over, I'm past the mood of wanting to think about last fall's harvest. We're almost always sold out of corn by then (about the time you're reading this). From this point forward we should concentrate on selling the crop that we plant this spring and even the crop that we will plant in the spring of '08.
This method of marketing will obviously miss any bull (for old crop) market that occurs in late summer as a result of weather problems. That's about two years out of 10. The other eight years this strategy will beat the group who hangs on to everything until the bitter end.
The corn and soybean markets are both set up for reasonably high odds of making springtime tops. Why? Both markets are fighting over acreage. Once the acreage is determined, the only thing left to worry about is weather. If 86.5 million acres or more of corn get planted and weather isn't a problem, the downhill slide could be significant. Nobody knows where this market will peak.
Bull markets normally peak with “enthusiasm” when buyers see no end in sight on the upside. This past summer, crude oil was a classic example, when analysts were predicting $100/barrel oil. This summer, someone will likely predict $10 corn and $15 soybeans. When those hit the headlines, the bull market should be close to over.
One thing you can count on — this market will fall faster than it went up, and in a much shorter period of time. Bull markets will peak and collapse as a result of their own weight. This one will be no different.
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.