Too many people compare this year's prices to what they got last year. Case in point — this year's actions in the LDP and loan program.
To be more specific, in round numbers, last year farmers took LDPs on 8.3 billion bushels of corn at an average price of 29¢/bu. As I write this article in late November, producers have LDPs on 2.77 billion bushels of corn, 33% of last year's amount. The average price: 17¢/bu.
In soybeans, however, last year producers chose LDPs on 2.4 billion bushels at an average price of 93¢/bu. So far this year, they have LDPs on 1.587 billion bushels — 66% of last year's quantity — and the average price is $1.23.
Thus far, LDPs for corn have not reached last year's levels, so farmers have opted not to take LDPs. On the other hand, soybean LDPs have been better, so they've been collected more aggressively. Unfortunately, many of the LDPs in beans were collected too early.
What's my point? Never decide to collect LDPs by comparing this year's price with last year's. Every year is going to be different. You collect LDPs only when you have two obvious signals — technical confirmation that the market has bottomed and (because the Posted County Price is not adjusted until the next day) a big “up day” in prices. Both of these signals occurred in late October. For those of you who subscribe to The Brock Report, your average corn LDP was 19¢. For soybeans it was $1.37.
Loan entries are only 19% of year-ago levels in corn and 35% in soybeans. However, that's understandable until after the first of the year, when entries will increase significantly because of income tax reasons. In fact, loan entries in corn may well surpass last year's level even though this year's crop is smaller.
Why? My guess is that, by the time you read this, LDPs for corn will be non-existent in many areas. I think the market has already bottomed. So, for cash-flow reasons, farmers will be left with options of either selling corn or putting it under loan. This is going to result in a significant change from marketing patterns seen the last four years.
Fundamentals are changing quickly. World carryover supplies of corn and soybeans are declining, not increasing. We anticipate that exports of both corn and beans will be higher than both last year's totals and current USDA estimates. Even though worldwide economies are weak, demand for grain is “price inelastic.” That means people still need to eat.
The negative news of big crops in South America and a weak worldwide economy is already discounted in prices. So the marketing strategy of selling early, which has worked since 1996, needs to be adjusted this year.
Price ranges in corn and soybeans in 2002 are going to be much wider than last year's. Along with wider ranges, there are going to be significantly better opportunities. That means your marketing skills will need to be sharper. This will be an exciting year to be involved in agriculture. Fasten your seat belts.
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.