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Senior Contributor

Re: Corn Market Update 10/18

Very grateful for your kind words. Thank you.

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Advisor

Re: Corn Market Update 10/18

Thanks for the info sir! Always appreciated. And if you want to come help with harvest that would be appreciated too! lol
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Advisor

Re: Corn Market Update 10/18

4.12 minus the front month continuous low from July at 3.34 is .78 to be exact. But that isn’t a low and a rally inyour book. Lame excuse.
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Senior Contributor

Re: Corn Market Update 10/18

In looking at macro fundamentals IMO food demand will stay the same on a world stage, what will change is the type of food consumed. Less meats, more grain and plant protein, this happened the last time the world economy slowed and will happen again. Foods like wheat, corn, lentils, and peanuts are the cheap staples that humans can survive on without meat and fresh fruits and vegetables. we are seeing a year over year decline in production of all of these commodities in the United States. We are seeing an increase in population over the world. At the current prices recieved by the farmer for all of the commodities that I have mentioned, we will continue to see a further decline in supply.
In my small neck of the woods alone many fields that aren't the top yielding are being turned into hay, pasture or pines. These are fields that two years ago where producing peanuts, corn, and other crops. This same thing happened in this area in 1999 and early 2000s just before the last commodity breakout. Land is being taken out of production just not being noticed. These poor commodity prices will reverse! The only question is who will still be in the poker game when it does....
Livestock producers on the other hand imo will have tough times going into the future.
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Senior Contributor

Re: Corn Market Update 10/18

Those are all excellent points when considering the demand side of the equation of what occurs in a recession. Yes, there certainly would be a change in individual consumer demand favoring grains over more expensive forms of nutrition. 

 

However let's not forget that there will also be a concomitant reduction in demand from bakeries and restaurants and other commercial consumers as a significant number close during recessionary times. Think about what will happen to demand for corn at ethanol plants when consumers use less gasoline during a recession. This phenomenon of reduced commercial consumption of corn during a recession results in a somewhat offsetting reduction in demand that counters the increasing demand from individual consumers.

 

But changes in demand are not what causes corn prices to fall in recessions. Its much more due to deflation. In most recessions, credit availability dries up, money supply growth turns negative, and each unit of currency buys more. Said another way, in recessions, prices for all items tend to fall, not only of a change in demand for any specific product, but also and more importantly because of dis-inflationary or outright recessionary forces that drag price levels lower across an economy,  The only times this does not occur is during the one off situations where there was a specific and systemic change in government policy that created an inflation great enough to cripple an economy, such as when the US cancelled the Bretton Woods agreement and the gold convertibility of dollars in 1973, or policies of extreme monetary excess as has been seen repeatedly in places like Argentina and sub-Saharan Africa. But those are the outliers, most recessions are accompanied by falling price levels because credit creation dries up, hence putting major downward forces on money supply growth, resulting in increased buying power for each unit of currency and lower prices for all goods and services. 

 

Now regarding the supply issue you referred to - fields that used to grow corn that are out of commission or growing something else - the national and global corn production numbers are saying otherwise. Supply of corn has been increasing for the last ten years, in large part due to increased demand from ethanol producers and third world countries that now can afford to import grains. China is the paradigm example but not the only one. And as I have written, the American farmers have risen to the task, and have not only met the demand but exceeded it. While supply to use ratios have come down sharply, they remain positive at record levels of production. Which is why I wrote that corn farmers have become victims of their own success. As they increased supply in excess of demand, prices suffered. 

 

Now if there is a trend away from corn farming, eventually that will reduce supply and lead to increased prices when the macro-economic conditions can support it. But we probably are due for a pretty good sized recession during the next several years, and being that the supply changes and consumer demand preferences take a long time to change in meaningful ways, my guess is that the negative changes in price levels will occur first, driving prices and land costs down, and setting the stage for a bottom from which prices then can rise again under a new economic model for corn going forward. 

 

I haven't mentioned technology in this discussion, but that also is a factor, especially in helping farmers to meet heightened demand during the last ten years. Technology increased capital outlay but reduces unit costs, and contributes to the downward pressures on prices. As other capital costs decrease during a recession, it will allow for farmers to have more capital for technology purchases coming out of that recession, and while making farmers more productive and profitable, it also will slow the growth of prices as costs of production are lowered by an even greater amount due to the technology advances. 

 

The bottom line to me remains the same. Corn was very stable in price for a generation coming out of the 20th century, and probably returns to the range of those twenty years as technology reduces costs of production. As long as production continues to grow faster than demand, the economic forces that would lead to higher prices are absent. What is needed for all agricultural prices to grow is a willingness of governments to tolerate higher levels of inflation in their economies, and grow their money supplies and credit accommodation fast enough to accomplish these higher inflation levels. But it won't be easy, because technological advances in all industries continues to drop costs of production, with competition within industries resulting in shrinking profit margins.

 

So in conclusion, the forces are strong against inflationary spirals, probably because governments realize they will not be able to continue buying votes with borrowed money in an inflationary environment. Accordingly, national policies that discourage inflation will cap price increases in most industries. Recurring recessions will periodically push prices down to new and lower ranges where they will stay for the periods in between recessions. Technology will respond buy reducing costs of production. Finally the process will squeeze as much water as can be wrung out of the production costs, and then you will have a bottom. We just are not there yet, but may be soon, like during the next recession. At that point, it probably will be a great time to buy into the farming business, and I expect at that point that very large and well-capitalized companies will either enter the industry or expand their present footprints in it. 

 

That's my take on where we go for the longer term. The market seems to hold the same view, which is why we have steadily declined in price for the last five years. What's really needed for corn price trends to rise is an increase in uncertainty. A few seasons of inclement weather causing drought conditions surely would change the price outlooks, because it would put a fear premium into prices. If the weather were to be a factor in corn production, prices would rise to account for that volatility in potential outcome.

 

But as usual, we all complain about the weather but no one ever seems to do anything about it !   8-)

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Senior Contributor

Re: Corn Market Update 10/18

What are you babbling about ? This is easy math, if you had finished the fourth grade you would understand it. 

 

As I wrote, my targeted average sales price is $3.80, my price objective to get out of the trade is $3.29. That's a profit of 51 cents.

 

My stop out point is $4.13, which is 33 cents higher than my targeted average sales price is $3.80.

 

So my reward to risk ratio is about 1.55. 50 cents of potential profit divided by 33 cents of potential loss. 

 

$3.34 in July has nothing to do with this. 

 

Take a shower and wake up...

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Senior Contributor

Re: Corn Market Update 10/18

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Senior Contributor

Re: Corn Market Update 10/18

Acreage has gone down but yields keep rising. This will not always be, yields have gone about as far as up as they can go. I'm really interested to see if they turn out as well as usda says. I think the usda has a trump resistance problem in their agency, we will see.

Senior Contributor

Re: Corn Market Update 10/18

That's exactly correct, yields have risen faster than acreage planted. 

 

As you can see from the chart in the link below, since 2006 yields have risen by 20% while acreage has risen by only about 12%. This is where the technological advances I wrote about come to play. And when it comes to supply, we multiply yields times acres, and with both increasing you have had a significant increase in the supply of corn...which plays a large role in explaining why corn has been and continues to be in a bear market.

 

https://www.nass.usda.gov/Charts_and_Maps/graphics/cornac.pdf

 

And don't forget, foreign production of corn has been increasing as well to put additional pressure on prices. 

 

With land costs where they are and many farmers averse to implementing means to reduce production costs and increase revenues, the only solution that gets implemented is to increase the volume of corn produced. This is not a unique problem to the corn industry, look at the taxi industry., As the cost of entering the business has fallen due to Uber and Lyft, taxi drivers are forced to work more hours to pay the loans they took to get into the business. Same principle. 

 

Which is why I have suggested ways that will stabilize if not optimize the farm revenues through the use of financial engineering products and paying more attention to the ebbs and flows of corn prices instead of hoping prices will always rise. But as you can see from the resistance to those ideas that I have encountered here, this is an industry that is resistant to change even though the profit margin squeeze is killing off a lot of the small family farms. 

 

That being the case, and considering the cost to either buy or rent corn farm land, there will continue to be serious cost pressures on corn farmers, who will respond for the most part by continuing to increase production, thus further pressuring prices downward. And its why I wrote that only the injection of uncertainty about yields as that would affect prices will cause corn prices to end their bear trend. Because that's the only way the vicious cycle of increasing production to increase revenues will come to an end. A few good droughts over the course of ten years and all of a sudden the corn market will start worrying that there may not be enough corn to go around to everyone who needs it, That fear will cause buyers to be more hesitant to hold back their purchases for a better price, the strategy that has worked well for them during the last few years but will be very costly once one bad weather season causes production to drop. 

 

Unfortunately, that entire process of changing the psychology of the market will take a while to complete, and in the transition period there will be farmers at their financial margins who will not be able to sustain their businesses during the few bad crop years that are essential for the change in psychology to occur. Which is why its even more critical that corn farmers develop better ways of optimizing revenue streams, for that will be the money that will keep them in business while going through hell to get to Heaven occurs.

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