07-16-2013 07:52 AM
I caught some slack yesterday from producers who refuse to listen to or acknowledge any type of "bearish" outlook. Primarily it is form those out there who want to continue buying into the negative USDA conspiracy theories, and how they are trying to manipulate the numbers in order to allow the Chinese to buy cheap corn....
Seriously??? From my perspective the government would want nothing more than to STOP subsidizing US farmers in any form or fashion, trust me when I tell you lower corn prices will NOT achieve that goal. I also believe the US government is desperately trying to increase consumer spending and US employment. Decreasing agricultural earnings here a home, would once again obviously NOT be the answer. Surely the US government realizes that by the US farmer making more money, spending will increase and more US jobs can be created not only in the agricultural sector but in other areas as well. Bottom-line I do NOT believe in any type of USDA conspiracy theory. Do I always believe their numbers, no, but I think they have an extremely difficult job considering all of the recent changes and growth within the industry.
I have long been called one of the biggest bulls in the industry, and I would love nothing more than for US farmers to continue banking big profits. Unfortunately you are NOT paying me to be a "cheerleader," but rather a "scout" or "informant" who keeps you abreast of pitfalls and problem areas that might lie ahead along our annual pricing journey. So trust me when I say there are people in the trade talking about the possibility of a "record yield" this year. In fact some are saying based on the historical USDA yield deviations from this point in time (20.4%) we could be looking at a crop of just under 11.5 billion bushels in the worst case weather scenario, or one higher than 16.0 billion bushels in the absolute best case weather scenario. Do I think that is going to happen? No, but I have also learned that anything is possible. The reality is there are several very respected sources in the trade who believe US yields could fall somewhere between 150 and 170 bushels per acre. If final yields come in at the upper end of this range prices will still be considered too high, at the lower end of this range prices can obviously be debated depending on demand.
Moral of the story, great business leaders learn to recognize and overcome their own personal bias and prejudice to make the most informed decisions. The first step is recognizing that everyone has a bias, and it can NOT be suppressed, but rather only managed. For producers that bias is obviously in being "bullish" the market. Why would any farmer have a bearish bias? You might be a pessimist or someone who doesn't like to be disappointed so you natural prepare yourself for the worst scenario... but as someone who grows corn, beans or wheat you are ALWAYS cheering for higher prices. Just like most of those who own a brokerage operation or promote hedging are notoriously more bearish (in an attempt to get more hedging business).
Remember it is NOT about trying to be "RIGHT," but rather about banking the most profits with the least amount of risk. Who cares if the yield is actually 135 bushels per acre if the rest of the trade believes it is 165 per acre. You may actually be "RIGHT" in your assessment, but you missed the entire price move. I can't tell you how many folks I have talked to who have missed one of the biggest US stock market bull runs in recent history, but still feel good about it because they believe they are "RIGHT"...what a joke! My suggestion is if you want to work somewhere you get rewarded for making the "right" predictions go work for the carnival guessing peoples weight. But if you want to be a good business owner or in this case "risk manager," you need to be aware of what those with more power and influence are thinking in regards to price.
I have never claimed to have all of the answers, but I do have some very good sources of information within the industry and believe I can provide you with a fairly accurate assessment of what is influencing price both long-term and short-term. As a business owner, trust me when I tell you, regardless of how it feels, or if it hurts your feelings, you want the most unbiased information and data you can get your hands on. In other words you want to hear both the good with the bad in order to make the best overall decision for your operation.
07-16-2013 08:11 AM
This is just my thought but "they" think that the price of corn is too high. "They" want end users to have abundant cheap grain, corn could drop in price by half and the gov wouldn't have to kick out anymore subsidy, in essence "let the farmer live off some of his own fat for awhile". When 10% of the voters disposable income goes for food, the wheels are all greased. Cargil and Bunge will make sure China will pay all they should
07-16-2013 08:38 AM
07-16-2013 08:45 AM
07-16-2013 08:47 AM
07-16-2013 08:54 AM
07-16-2013 09:26 AM - edited 07-16-2013 10:02 AM
Starting out with initial projections of max (or record) acres, together with trendline (or higher) yields, provides the market with a bearish price outlook (from USDA) from that point in time until proven otherwise. Then, condition ratings lag the real siituation in the field due to the time required to observe, report, and verify the information, while condition "appearances" do not accomodate the current situation with wet and/or late plantings and uneven/delayed crop development, nor the current risk of a high percentage of corn pollinating in a narrow window of time. And, final/real numbers (from USDA) are delayed significantly from when they should be known based on farmer reporting mechanisms (to USDA, and crop insurance, which is also information totally available to USDA).
07-16-2013 09:29 AM
14B bushels was off the table when we planted it ???? Then how come we went to $4.90 CZ ? Seems like I know who refuses to listen to reason and it is the producers with the tin foil hats crying conspiracy !
07-16-2013 09:45 AM