What to watch in 2012
This promises to be another year of high volatility for the commodity markets. 2012 could be either a year of record setting prices depending on weather, or could be a year where prices fall down and lie in a lower trough of technical support.
Often times when I talk to a client who is newer to marketing, there is a sense of awe, frustration, denial and amazement when I explain all of the different factors that make up their local cash price, as well as the futures prices in Chicago.
It used to be as simple as watching two or three fundamental factors, but now producers must monitor and juggle nearly eight factors all at once. So which ones matter the most? Here is your quick guide for factors to monitor for 2012:
1. USDA Supply and Demand Reports – the big ones are monthly, and occur usually between the 10th and 12th of every month. These reports provide a snap shot of current supply in the U.S. as well as global demand for grains and livestock.
2. Weather – not just in the United States, but around the world. And not just in your backyard either. Drought monitors must be watched, rain totals must be tallied, as well as planting conditions and harvesting conditions domestically and globally.
3. Global Economics – yes, it does matter whether or not Europe is having a recession. Yes, it does matter if China’s housing bubble bursts. Those are all factors which affect the price of your grain and your livestock.
4. The Value of the U.S. Dollar- Remember, when the value of the U.S. dollar is higher, it then makes our products more expensive for other countries to import. If countries are not importing, then obviously our export market slows, which keeps greater supply here at home.
5. The FUNDS – yes. It does matter what they do and if they are buying or selling, and if they are doing so for short or long term time periods.
6. Long Term Supply and Demand Forecasts – how much grain will the world raise? How quickly will the global population grow? How will emerging markets, and a growing middle class raise demand for protein?
7. Current Events – elections, Iran -- need I say more? It all matters, because global urgencies can trump another market fundamental at any time, so find a well balanced news source and keep an eye on things.
The above are all factors to monitor this year, and to strategically incorporate into your scenario planning. Often times the winter months are when producers look for new approaches to marketing or new advisors to work with. Make sure that for whomever you’re working with, or if you’re going solo, the above factors are top of mind. Best of luck with your New Year!