It is always darkestâ€¦.
There is a saying in marketing circles that the news is always the worst at the bottom.
We saw the opposite of that maxim in June when the most bullish news about delayed plantings and the weakness of the dollar came at the same time as historic highs in the soybean and corn markets. It is hard to imagine the psychology of the market being any more negative than this week when cash soybean prices dropped $1.93 for the week. There is another saying that it is always darkest before it is completely black. I certainly hope that is not what we are experiencing this week!
It is difficult to be positive with the attitude that prevails in the general economy. Slightly more than a month ago I was on a program with a well known economist who explained that three economic indicators, five percent inflation, five percent unemployment and five percent interest rates all showed things are not as bad as the media portrays. I wonder if his attitude has changed in the last five weeks?
As a farmer and market watcher, it is difficult to judge the big economic picture. However, I do observe what is going on around me. I also remember other times when financial markets took a big plunge and what happened to agriculture. In the fall of 1987, the stock market crash had an effect for one day on grain prices. Of course, we started from a depressed level that year. December corn was around $1.85 and November soybeans $5.30. Before the 1988 crop was produced we were all focused on drought. Maybe there is no correlation to this year's scenario.
First and foremost, it is very common to see a major low in soybean prices the first week of October. In fact, the soybean price dropping going into the first week of October is the most reliable seasonal move in the marketing year. A big wash out in prices is never pleasant. However, knowing that it is probably coming should at least make it tolerable. There is no guarantee that prices will rally off this low. However, the odds are about 80 percent that there will be price improvement sometime between now and the end of the year. The critical factor is the level at which the rally begins.
Secondly, we need to understand where we have come from to get to this point. Yesterday, October 2, the cash soybean price at my local elevator was $9.00. A year ago on October 2, 2007, the cash soybean price was $8.21. Last year, we were delighted to have that price with good yields. This year it seems like the pits!
Third, those who chose a crop insurance product with a price component will have a floor under income. This year the price guarantee could be at least as valuable as the yield guarantee. The premium is somewhat of a sticker shock. With big premiums come big opportunities. With my 90% GRIP policy, if my county has an average corn yield I will get 30 cents per bushel at today's futures price. If prices continue to drop, the payment will get bigger.