For people in the livestock industry, the best news is that 2009 is finally over. Never in history has the livestock industry seen so much red ink — led by the dairy industry, then pork and beef. The good news: 2010 should be a very bright profit picture for the livestock industry.
As we move forward into 2010, marketing and purchasing strategies will be on all producers' minds. To help your thinking process, let me share with you some of my own thoughts — which you may or may not agree with.
To begin with, I am in the deflationary camp, not inflationary. Even though money supply is increasing sharply, tightening of credit is slowing demand. We are in a consumer-driven economy and the consumer is out of work.
Many economists are saying the recession is over, but I view the last nine months of improvement in the economy and in the stock market as one of only short-term recovery as a result of companies rebuilding inventories and the job market starting to stabilize — at some point the loss in jobs has to quit.
With that train of thought, here are four predictions on what will happen in the next 12 months:
Grain prices will finish the year lower. Sharp increases in soybean production in South America will offset increased Chinese purchases. Yields are also increasing faster than demand. The ethanol industry will remain strong, but corn yields are increasing faster than the demand for corn ethanol.
ENERGY PRICES WILL finish lower. The world is still in a slowdown mode. Little expansion is occurring anywhere, which results in lower demand for crude oil. The downside potential in prices is greater than the upside risk. The surprise here could possibly be problems in the Middle East that could send prices back up, but I think those odds are remote.
Livestock profits will improve substantially. Milk prices are headed back higher as cows have been culled and the dairy herd is back to a more manageable level. Pork and beef prices have also bottomed. Producers will be paying less for feed.
The stock market will finish 2010 lower than it started. As stated earlier, we are in a deflationary environment and although some industries appear to be doing well, it's a whiplash recovery from extremely low inventory levels. As long as the consumer is unemployed, this recovery is going to be long and slow.
Richard 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.
THE BOTTOM LINE
The world is going to go back to a more stable and less volatile price environment. The volatility that we have witnessed over the last two years will start to be more stable. This will make management decisions easier. An important element to keep in mind in this type of environment, however, is not to compare this year's prices to last year's prices. Just because prices are lower than a year ago doesn't mean they can't go lower.
Aggressive forward sales in the grain market will likely pay off in big dividends this year and yet I would be slow on buying energy-related inputs.