Top tools for first-rate market plans
No one expected the record-breaking streak of corn and soybean prices to last forever. You know better than that. But 2014 is shaping up to be a time to hit the pause button, put current economic conditions into a historic context, and focus on an emerging set of factors that will impact prices and profit margins into the future.
So, get ready for a reality check. Stay flexible and move in sync with the markets as they head in the direction of a brave new world of modest expectations.
“Don’t compare markets to last year,” says Chad Hart, Iowa State University ag economist. “We’re used to seeing home runs the last few years. Most of us are more singles hitters. We’ve got to go back to tried-and-true market rules. Go back to looking at margins and making a profit when the market offers it. The market only offers it about half of the time.”
The unpredictable and risky nature of farming was on full display during the 2013 growing season. Following on the heels of the devastating 2012 drought, many producers slogged their way through the wettest spring planting conditions in 119 years of Corn Belt history.
After only a couple of good days in April, farmer Dale Hadden of Jacksonville, Illinois, who farms with his parents and brother, was out of the field until May. “We were rained out May 16 and couldn’t get back until June 8. That’s when we went ahead and planted corn,” he says. “Then we replanted corn later. We had three planters going on beans and ran nonstop to June 18. We had 4 inches of rain in three hours, beating seed into the ground. We replanted beans, too.”
Then the faucet shut off. Crop conditions slowly morphed into a drought tempered, at first, by an unseasonably cool July and finally overtaken by intense August heat. Average precipitation across Indiana, Illinois, and Iowa during July and August was possibly the third lowest since 1895.
By early September, uncertain crop prospects clouded the market horizon, as corn and bean prices seesawed over kernels of news. Then scattered rain fell on late-maturing crops across the eastern Corn Belt. Bolstered by bin-busting yields harvested outside of the Corn Belt, the stage was set for a September 30 report signaling a rebuilding of corn stocks.
“We could see potential for a very large corn crop hitting the market,” Hart says. “The report indicated basically two different Corn Belt crops: one in the eastern part and one in the western part.”
The threat of frost damaging immature soybeans, along with a tighter market with limited carry, weighed on the market. “Bean prices held up relatively better than corn,” Hart says. “By late September, the market was front-loaded for beans. That will begin to reverse.”
Set against a backdrop of potential climate-change headlines, today U.S. agriculture is confronting three other converging realities:
Global competitors chasing ramped-up commodity returns.
Export demand destruction triggered by an era of tight, high-priced stocks.