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.
How true for a bull market in corn and soybeans, too. Put yourself in the position of a poultry producer, a pork producer, a beef producer or a dairyman: $6.50 corn is not as appealing to them as it is to the seller.
In the midst of this major bull market that’s been going on for seven months, the one positive aspect is that pork and beef prices have at least risen mostly in step with grain prices.
Profitability of beef and pork is not near as good as it was six months ago, but a sharp increase in meat exports has helped bolster prices so the spreads are not as bad as they might have been. Nevertheless, there is very limited balance. So when nearly 40% of the U.S. corn crop goes into livestock feed, losses can’t continue forever without an eventual cutback in livestock production and thus usage.
Over the long term, markets have a tendency to seek balance. While producers don’t want to hear it, big bull markets in grains have always turned into big bear markets in grains. This one won’t be any different. It’s not a question of if, it’s a question of when. You’ve also heard many times, I’m sure, that the bigger the bull, the bigger the bear to follow.
There is hardly a producer in the coffee shop throughout rural America who isn’t on the bull bandwagon and convinced that prices are going to stay high forever. This market has a feeling very similar to June and July 2008, as well as the bull market of 1988 and 1974.
Markets change but people don’t. Human nature always results in markets going higher than they should and then going lower than they should. The fact that as human beings we seem to move in a “herd” is no different now than it was 40 years ago.
As I write this corn is at $6.50 in old-crop, new-crop at $5.90; old-crop beans at $14 and new-crop beans at $13.50. I’m not a betting man, but if I were I’d bet heavily that all these prices are going to be lower by the 4th of July. The risk is – they could be a lot lower.
Producers throughout the country currently have the opportunity to lock in the best year if not the next two years that they’ve ever had in history. Don’t let the bull overwhelm you in making emotional decisions. Be guided by your bottom-line profit and make decisions accordingly. Profits like this do not come along often – and they can disappear quickly.