With all the negative current events in the world economy and U.S. agriculture, many would like to think that this is a bad dream and that we will wake up someday and none of this really happened. The collapse of the stock market and the commodity markets is sending ripple effects not only around the world, but more important, to most readers throughout farm country.
In June, July and August at nearly every speech I gave, I noted that the biggest move in commodities for the rest of the year would be the biggest bear market in corn and soybeanswe've ever witnessed.
Some farmers laughed so hard they had to leave the room because they knew I was dead wrong. One thing hasn't changed in my over 30 years in the commodity business: Everybody still gets crazy bullish at the top and won't listen to anyone.
My biggest mistake at the time: I should have been more forceful in my conviction on the bear market that was coming. But as with almost everyone else, I certainly didn't foresee that the bear market in the grains was going to be as severe as it has been. But then, who, if anyone, predicted a collapse in the worldwide economy, which is now the major influencing factor?
HOW LONG WILL THIS LAST?
Longer than anyone wants. Tops in markets are always short, and base building takes a long time. We should begin that phase relatively soon.
The good news: People still have to eat and the worldwide demand for grain is still good, just not as strong as it was four months ago. The ethanol industry has built in good strong demand that will last for a long time.
If fundamentals amount to anything anymore, corn, soybeans and wheat should all be in the process of making bottoms as I write this in early October. Basis levels are improving and I believe will continue to improve. Carryover supplies of corn will likely decline over the next two years and in such case, we are not going to have a surplus of $4 corn. What we'll have a surplusof is $7.50 corn.
THE BIGGEST CONCERN
One thing I hope readers listened to that I kept pounding on for the last nine months was not to buy inputs early this year — particularly energy-related ones. The financial squeeze is going to be the most difficult on producers who bought fuel and fertilizer early. If a producer bought those inputs early and sold no grain, the financial squeeze is going to be severe.
Overall, 2009 will not be as bad of a year as some now expect, nor will it be as profitable as some thought six months ago. Reality is now setting in and people will realize that $5 corn and $9.50-10.50 soybeans are good. Both producers and users can make money at those levels.
Corn at $7.50 and $17 beans were not the real world. I think we'll find in the longer term that $3.50 corn and $8.50 beans are not the real world either. This market is being overextended to the downside just as it was overextended to the upside in June. It'll take at least a year before we get back to more normal markets.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. Fora trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.