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New highs --- AGAIN!
Guys like me in the marketing field are getting used to writing the words "New
Highs" in the past 12 months. Just when it seems like the market is coming to
an end to how high it can go, BAM! It's higher!
Wheat is a case in point. With
further drought stress in Australia, continued rapid exports, and just a minor
indication that US planting is behind normal and here we go again. This time
wheat has once again forged new all-world, all-time highs and re-written history
Soybeans aren't far behind, with a new high close tonight for umpteen years, and
now the two food crops have got everyone's attention. Another interesting thing
occurred in the past week - the US dollar moved to par value to the Canadian
dollar. Wasn't long ago that people in the US looked down on the Canadian
dollar as 'funny money'. Now, our currency isn't any better!
We've talked before how economic times are really combining to make grains the
hottest investment on the planet, especially in terms of US dollars (which are
perhaps one of the worst investments on the planet right now). It seems
everyone wants to own grains, a trend started by the funds about a year ago, and
now it's spreading almost everywhere.
Farmers have been burned by sales (any sale!) in the past 12 months of wheat,
soybeans, or just about any other crop but corn. In fact, for most producers,
corn is the only crop that is lower than it was at some point in the last year,
and even corn hasn't spent much time above current price levels (especially
distant futures months).
These farmers also are selling their crops for a lot
more money than 1-2 years ago, and it is starting to make pockets a little more
flush. The need to sell grain to generate cash may no longer be as important as
it was in the past. Hoarding of grain as an investment might again become a
popular habit among farmers, and one certainly can't argue with its success in
the past 12 months. Funds have popularized the idea of owning grains as a US
inflation hedge, and more and more people are jumping on this bandwagon.
It could become harder and harder to pry farmers fingers off of grain the longer
this lasts. It could become an interesting situation with basis, which right
now is absolutely awful to the point of being hard to believe. But then, a lot
of grain has been sold ahead this year, and it's moving its way into the pipeline
faster than ever. When farmers are selling at prices 20% higher than the
highest price ever, its hard to even care about basis. But yet, those who do
are likely to see a huge reward in the end, and usually basis is the 'easy
money' in grains.
Could we see a 10-20c stronger than normal basis the last 6
months of the wheat/soybean marketing year? And even for corn, with our huge
crop and projected 1.5-2 billion bushels stocks? With stocks expected to be
tight for wheat/beans, even this seemingly impossible basis goal might seem
'small' come the final months of the year. With stocks small and 'hoarding' of
grain a likely popular pastime by then, we could yet get our socks blown off by
how strong basis can actually get!
The chips just keep getting larger on this grain poker table, with many of the
players smiling broadly as long as they applied the old rule to do everything in
moderation, including selling grains! Pro Ag warned of this principle last fall
as we entered what looked then like a new age in grain markets. Today, with a
12 month history of some of the most significant price moves we have ever seen
in the history of markets, that advice is perhaps even more relevant today.
Selling is OK (just like drinking), just do so in moderation! Make sure if
prices keep going higher, you are still making money, and not losing it.
Australian wheat farmers, rumor has it, are relearning those lessons again
today. Let's hope that doesn't become more common!
Ray Grabanski is President of Progressive Ag, a marketing and risk management
firm for farmers located in Fargo, ND. For questions or comments, or if you are
interested in more information about Progressive Ag services, call 1-800-450-
Guys like me in the marketing field are getting used to writing the words "New Highs" in the past 12 months. Just when it seems like the market is coming to an end to how high it can go, BAM! It's higher!