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10-09-2018 06:40 PM
That strategy has been a huge loser for the last five years as corn prices have continued their inexorable downward march. The money you lose on storage and opportunity cost of your corn could have been making you profits instead of draining your cash. Maybe you have a small farm where the storage and opportunity costs don't matter, but if you have several thousand acres at 150 bushels per acre, I can't imagine the cost you incur because you refuse to listen to what the market is telling you.
I'll give you a good example for right now...the corn market spent ten years, from 1997 through 2006, trading in a narrow range from $2-$3 a bushel. Save for a burst up to $5.50 in 1996, the prior ten years before that also stayed in a range from $1.50 to $3 a bushel. Now we know from history than financial and commodity markets always have a strange tendency to go back to where they started from. And I'll tell you, if we break $3 to the downside in corn, we're going to go back into that historical range for quite some time into the future.
And why shouldn't we ? Corn farmers worldwide are producing more corn than ever before, outstripping the increased demand from mouths and cars. You have machinery now that cuts the time it used to take to put the crop in the ground and take it back out. You have economies of scale that for the large farmers reduce their costs significantly. You have financial engineering products and strategies that help you to lock in your profits are critical prices. And you have the best farmers in the world working the fields. Then if all else fails, you have taxpayer subsidies in some farm products that help you defray a portion of your costs.
So with all that, how do you expect prices to move higher for the long run ? The key to profitability in farming going forward is not three Hail Marys and an Our Father at bedtime, hoping the price will move in your favor.. Its bringing in more capital to your enterprise, cutting costs, optimizing income, and getting the government to provide you with long term solutions to your land cost issues instead of annual handouts.
But you watch how many farmers will disagree with what I just wrote, thinking they know better about the financing of their work. And then you wonder why prices keep going lower ? And in light of all that, you're going to store your corn until the price goes higher ?
There's an expression in Wall Street trading rooms, its a play on the old Linda Ronstadt song "The First Cut Is The Deepest". What they say in the trading rooms is the first loss is the cheapest. Which means when you're the wrong way in a position, get out when you first realize it because its probably going to get worse. And while you're waiting for that bad position to turn around, your capital is all tied up so you miss all the opportunities you could have taken advantage of if you had just freed up your capital when you first realized the market was not going your way.
Far be it from me to tell you how to run your business, but that Wall Street analogy makes as much sense on the farm as in the trading room. Just for a moment consider how you will feel if corn prices drop into that old $2-$3 range and stay there for a while. You could have sold at $3.60 and now you're looking at a 33% haircut off that, paying for storage, and seeing the capital you pledge to your banker cut by a third. I'm sorry, but that is not the finance that I learned. Maybe its different in farm country, but when it comes to money, its always the same.
Good luck and best wishes with your harvest.
10-09-2018 06:51 PM
I'll copy what I wrote above to make it easy for you to read it :
btw, the numbers released this afternoon are encouraging for the end users. The national corn harvest gained 8 percentage points last week, despite the reports around here that the Mid West had Biblical type rains that were making harvest impossible. Even in Iowa, where several of our resident naysayers reside, their corn harvest rose from 11% to 15%, double of the progress at this time in Iowa last year.
Nationwide, the corn harvest is 34% complete, which compares to 21% at this time last year, and a long term average of 26% for the beginning of October. NOAA is predicting the sun will come out starting this Thursday and stay bright and sunny for the next two weeks thereafter. So for the corn crop, the wet weather of the last week is not stopping the world's best farmers from getting what appears to be a massive crop into the market.
Nationwide the harvest numbers are very good, far better than average and last years. Especially with the rain condition. Even Iowa has done a better job this year than last. So my facts were straight, maybe when the winter comes it might be time for a trip to the eye doctor. The nationwide numbers are very favorable to end users by any measure, even in Iowa. And remember, the corn price is still set by producers across the country. Maybe you can convince the exchanges to have a contract just for Iowa. But until that happens, these production numbers were very welcome news for those market participants expecting lower prices.
Let's see what the yield numbers say on Thursday from USDA. Just so you know, for the last 25 years, the USDA raised its crop estimate in the October report from the September report 14 times, lowered it 8 times, and kept it the same 3 times. Which means there is a 68% chance that the October report on Thursday will be even higher than the unexpectedly large September report. The private surveys taken since the last USDA report also have suggested an increase in the USDA number, and the Progress report released earlier today said the Crop conditions remain strong, about the same or only slightly lower than last week's reading before the bad weather.
Numbers don't lie. There's a big crop coming in and buyers still need to be found.
10-09-2018 07:04 PM
I suppose it helps a lot if you don't have a banker.
Last harvest when the cash price was $2.85, it went in the bin and stayed there until we were seeing $3.40-$3.60
I remember a number of years ago when corn was 2.30, I decided not to accept it and moved it to other bins.
A year and a half later it was sold in the $7-8 range. Now that is good return on investment.
The same thing might not happen for a long time, but I sure will not get excited about hedging prices in the bottom 10% of the recent trading range.
If it drops a bit in the near term, so be it. I won't sell then.
Better days will come.
The older you get the more you realize not to panic when things look bad.
10-09-2018 07:09 PM
Just reporting here. Not a prediction- a fact. I checked my unharvested bean field today and noticed that some of the dark brown pods have popped open and the white swelled SPROUTED beans are showing.
A very small % of the total pods but sprouted beans are dead beans. We have had around 3inches total in all of Oct. but rain recorded for every day of Oct. Lots of light rain, drizzle, fog , high humidity and only about 3 hours of sunshine for the whole month.
10-09-2018 07:23 PM - edited 10-09-2018 07:29 PM
Now what you wrote is an excellent example of why a hedging program is the right thing to include in your business. You wrote that cash prices during harvest season were at $2.85 when the December 2017 futures contract was trading between $3.35 and $3.60 for the entire period from September through December. Why can't you sell you corn through the futures market and make delivery into the futures contract you sold.? Why would you have to take such a hit in the cash market ? Is it transport costs ?
And yes, I recall what happened in 2012 when prices spiked. It was a different set of circumstances then...a bullish market and a lot of excitement over ethanol pushed prices to $8.43 before the party ended.
Its a different market today. A bear market that started when those prices in 2012 skyrocketed. And it seems that the bear still has more work to do. So the storage trade may not work very well going forward for a very long time to come.
Look, I hope that you get a favorable report on Thursday and prices move up towards the $4 level. You work hard and deserve to get paid for that work. For me, I don't care if prices fall or rise, I make money regardless as long as the prices move. But as I have written, the risks are very strong right now that a down move will be a lot larger than a corresponding up move, with the growing possibility that we are on our way back to the $2-$3 range we were in a decade ago.
10-09-2018 07:26 PM
We were talking about that last night, that it seemed from reports at the front lines that the bean crop was not in such good shape relative to the corn crop. I don't follow beans so I have nothing to offer on the subject save for the fact that in the price move up of the last two weeks, beans made the same percentage move as corn. If the bean crop was damaged more than the corn crop, the beans should have gone up more. Which begged the question :"Is it time to buy beans and sell corn ?", expecting the bean price to move higher on a harvest not nearly as successful as the corn harvest ?
10-09-2018 08:49 PM
I work for myself, managing my own money in a fund that I created. Its not too hard to find out who I am with a little internet searching. If I worked for an advisory firm I would not be giving you the information I have written here, I'd be trying to get you to buy it. That's not the case, I have been open and honest about how i see the market, I spent nearly forty years in trading rooms managing positions in many financial and commodity markets. I came here to see if there was any good front line information that could be gleaned from the farming community.
10-09-2018 08:53 PM
What we have here is an individual with no practical farming knowledge telling us how to do it.
He started by asking one of our long time posters if he even had indoor plumbing..
Since then his condescending posts have only increased in frequency and verbiage..
This is someone claiming to be a big time trader
This is a first hand, states #1 exhibit of what we as producers are up against. Citidiots with all the answers, too bad they don't match up any of the questions.
Should be so wonderful to to have a market of only people/businesses with a dog in the hunt.
Farmers, merchandisers, end users etc , the CBOT has morphed into something never intended. Just label it Casino De CBOT.