For the most part, farmers like bull markets. Bull markets, however, are normally associated with crop production problems. That means the only way you can enjoy a bull weather market is if someone you don't know is having the production problems.
But if you're on the wrong end of this stick, bull markets — such as we've been experiencing the last couple of months — are no fun. Seeing prices go up while your corn and soybean crops shrivel to nothing is one of the most demoralizing aspects of farming. You go to bed and thank God that you bought crop insurance. If you didn't, well …
How High Is High?
For the few weeks after I write this article until you read it, it's ludicrous for me to tell you where the top of corn and soybeans will be. It may well have occurred by the time this magazine hits your mailbox. Why would I say that? Simple. Short crops peak early and have long tails.
As a rule of thumb, short crops will establish the top price of the year either just before, during or right after harvest. The reason is because supply-driven bull news is obvious, emotional and consequently gets built into prices quickly.
Remember to always ask a simple and very basic question: What do we have a shortage of? Do we have a shortage of $1.80 corn, $2.30 corn or $3 corn? My guess, when it's all over, is that we had a shortage of the $1.80 variety but a surplus of the $3 variety.
The long-term impact of high corn and soybeans prices at this time of year is not very positive. Acreage in South America will shoot up even more than expected. Combine high prices with the current Farm Bill and next year corn acres in the U.S. could set a record high. This is a market that will go from tight supplies to huge surpluses faster than almost anything you've ever seen.
We've quickly gone from a period of trying to maximize government payments to one of maximizing grain sales. Government payments are going to be small this year — count on it. This will be a year most of us will not want to remember in our farming careers. But remember the old saying: Always store a record crop; never store a short crop.
Corn and soybeans should both be priced early this year. That means getting the price set for either harvest delivery or January-February delivery — whatever fits your income tax and storage situation.
Weather markets bring out ultimate emotions for producers, lenders and even farm market advisers. It's easy at times like this to dwell on the negatives and overlook the positives. We've been through markets like this before and unfortunately we probably will again. This is all part of farming and marketing.
Also, don't forget the '03 crop. When this market peaks, your best opportunities for pricing '03 corn, soybeans and wheat will be starring you in the face. Emotionally, making sales for two years worth of crops at the same time will be tough — but will pay off in the long run.
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.