You are here
Ebb and flow of markets
Markets do indeed ebb and flow, and prior to the break in January Pro Ag had
indeed warned a few times of some impending problems in the grain markets,
mainly generated by outside interests who didn't seem to be supporting stronger
grain markets after late December. We cautioned about the good profit margins
offered by the marketplace, and many producers heeded these warnings and placed
some nice hedges into the market at handsome profit levels.
But surprise, surprise, it wasn't the outside markets that generated the
weakness in grain markets in January. Instead, grain markets dropped in January
right after a key fundamental report on grains Jan. 12. The increased supplies
of grain that were 'found' in that report (although not overly large) were
primarily responsible for finally pushing grains into a downtrend. And
downtrend we did with a vengeance, with over 10% price declines in virtually all
grains in the past 3-4 weeks. This week, the market is finding some strength,
and has rallied lightly until today, when sharp losses once again dominated the
So here we are, setting our February insurance price elections in a declining
marketplace. This is not the type of bidding for acres that we were looking for
when the marketplace was all aglow just a few weeks ago. It's amazing how much
the face of the market changes from bull to bear in a short time, with little
fanfare in between or even debate among the players about the price direction.
As a friend of mine once said, "Basically, the market is fickle!".
It's hard to argue with his statement today. The ending stocks projections
didn't change much from December to January in corn or soybeans, but prices are
a good 10% smaller than they were a month ago, when virtually the same ending
stocks projections were out by USDA.
Fickle, pickle! Unless you take advantage of these wild price swings on little
change in actual underlying fundamentals, there is no gain from these price
For those who have been heavy sellers of grains at $4-$4.50 corn futures and
$10-$10.80 soybean futures, we'll have an opportune time to take advantage of
the fickle market by buying back grains sold at perhaps as little as $3.20 March
corn futures, and also 8.50-9 soybean futures or lower?
Somewhere there is a line in the sand where grains should no longer be sold, and
one potential place for that line is when growers are no longer making any
profit margin in the marketplace. We had a 10% or better profit margin in
January, but that is largely lost now so maybe we have already crossed that line
(or are close to crossing it). We are now closer to break even or even showing
small losses on production costs now for 2010 crops.
Maybe another line needs to be drawn in the sand whereby growers start buying
back grains already sold at a 10% or larger profit margin. Does that come when
balance sheets are bleeding red??? At what level, a 10% loss level, 15%, 20%???
Corn futures prices might drop down to the $3.20 March futures levels quickly
now that we've broken the $3.60 support area. Is $3.20 a large enough loss area
where we begin to buy back sold grain? Is this where buyers of grain (ethanol,
livestock feeders) start to buy in needed supplies of grain??? For sellers with
good sales on the books, this represents a 20% profit margin now on 2010 grains
sold (the 10% original hedged margin PLUS another 10% profit from markets
pushing 10% into the red).
The delicate balance between supply and demand continues, but it seems to swerve
in between a more concentrated and balanced line today than we had just a few
years ago. Perhaps that's due to the more stable cost levels in the market
today. There are places where decisions need to be made, and where heels need
to be dug in to make good marketing decisions for 2010.
Perhaps some of the above guidelines need to be applied to 2010 marketing
decisions. And rather than be concerned now about not selling more grain at the
10% profit margin levels or higher (an opportunity already missed), maybe now
with the market break we need to be looking at a place where grains are flowing
red ink from 2010 balance sheets, and look to be a buyer at those levels (an
opportunity yet coming?). Maybe wait until the bearish momentum is gone from
the marketplace? Stay tuned, there is more fun ahead for the 2010 marketing
year! And may the fickle market be used to your advantage in 2010 - as long as
you yourself do not become pickled in the process!
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on
If you have questions about this column, call Progressive Ag at 1-800-450-1404,
or email Ray at rlgAATTprogressiveag.com.
Markets do indeed ebb and flow, and prior to the break in January Pro Ag had indeed warned a few times of some impending problems in the grain markets, mainly generated by outside interests who didn't seem to be supporting stronger grain markets after late December. We cautioned about the good profit margins offered by the marketplace, and many producers heeded these warnings and placed some nice hedges into the market at handsome profit levels.