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It's all a game!

Agriculture.com Staff 06/09/2006 @ 11:44am

By the time you read this, I will be on my way home from a meeting with the agricultural economists at the University of Minnesota, brainstorming our marketing workshops for next winter.

We are sometimes asked why we call our workshops "Winning the Game." The obvious answer is that a computer simulation game is used to teach marketing principles. Specifically, seasonal price trends for forward pricing new crop corn are easy to illustrate in this way.

The real reason for the name of our workshops is my philosophy that marketing is more of a game than a business. Most aspects of the farming business are controlled by well-defined rules which, if followed, achieve predictable results. Crop genetics, fertility, and crop protection products, when used correctly, result in predictable outcomes. Weather can throw an unknown factor into the mix. Given normal weather, most production variables are controllable.

That is not the case with marketing. Even with the best marketing information available, the outcome is only 70 percent predictable. I have studied a lot of systems and listened to many marketing experts. No one has guaranteed that they could predict the direction of prices more than seven times out of ten. Most do not do nearly that well.

I thought about this principle a lot this week. The long-term seasonal charts for both corn and soybeans show an early summer low in prices the first week of June. With the crop mostly planted and only a few areas short of moisture, weakness in prices the past week should not have been a surprise. It also should not be a surprise if prices rally at some point in the future.

When to expect the rally and what to do when it comes is a guessing game. The summer rally is notoriously unpredictable both in timing and magnitude. Every year some areas are dry and some are wet. Right now, central Nebraska is very dry. However, some parts of my county have had five inches of rain in the last two weeks. Some areas of the country were planted early and some were planted late. On average, things are average. Crop conditions this week showed corn 71 percent in the good to excellent category. Soybeans looked almost as good at 70 percent. Those numbers are about ten percent above last year at the same time.

This year two additional uncertainties sway market attitudes. High energy costs and the effect on biofuels, especially ethanol, put speculators on edge. New plants going into production will surely change basis patterns and influence futures prices. The possibility for Asian soybean rust keeps the oil-seeds markets from doing what they would normally do with such a huge projected carryover.

The negative side of the coin is that someone is going to store 2.2 billion bushels of corn into the next marketing year. Projections are for the largest soybean carry over in history. If crop conditions are as favorable the rest of the summer as they appear now, supplies this fall could be so large as to be almost unmanageable. Prices will almost certainly be lower than they are today. Basis will determine cash prices, regardless of what the futures market does.

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