Posted: October 16, 2012
Remember, I don’t believe anyone can accurately predict the future. So, I take most of my cues on commodity prices from what has happened in the past and what is happening today. Sure, I listen to all sorts of forecasters, but I try to discount what is said.
From where I sit this week:
- There is a general shortage around the globe for corn and soybeans
- There is a significant surplus of wheat around the globe.
- The U.S. is the major corn exporter.
- The U.S. and South America are about equal soybean exporters.
- Wheat comes from all but one continent (Antarctica).
The above has me thinking:
- Corn prices will be “strong” (whatever that means) through to or near the 2013 harvest.
- Soybean prices will moderate when the South American harvest begins in early March.
- Wheat prices are supported by corn, yet subject to harvest conditions in many locations.
All this is balanced with:
- Increasing world population primarily in developing nations.
- Relatively high feed prices challenging the profitability of livestock producers.
- Global political and fiscal instability.
- Increasing food costs for consumers.
- The U.S. dollar is valued at 80% of what it was in 2004.
Given some areas of the east coast had weather challenges during the 2012 growing season. However, it appears we will have a crop to market when many other parts of the U.S. do not. Now is the time to fully understand what normal basis is at our regular cash buyers. Futures prices come and go. Basis can have much more to do with what we actually get to deposit in the bank. A rule of thumb is: when basis is strong the market is asking you to sell, and when basis is weak the market is asking you to hold your grain for now.
When I see you at a winter meeting I will ask – “What price is good enough for you?” It’s a great time to be in the food business. I believe the opportunities are only limited by our imagination. However, the challenges are also great. Let’s keep our heads about us as we seek to both maximize our revenues, and minimize our risks.