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Stick to your grain marketing guns
The biggest single-day loss in the stock trade on Thursday shook the financial world hard. There's a lot of uncertainty in many financial circles now, and that, to an extent, includes the grain markets.
But, if you stick to the fundamentals in the grains and don't get caught up completely in the "hysteria" swirling around the world financial community in general, there's still money to be made, and still the opportunity to carry out your marketing plans successfully. Just be ready for a lot different pricing environment.
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"The days of 2-cent changes seem to be long gone," says Grain Hedge and GeoGrain marketing specialist and analyst Kevin McNew. "So much money flows in and out of this market any given day that you see these wild swings. The day-to-day gyrations are pretty large."
And, that's for good reason. Investors are looking for more solid commodities and away from stocks. But, with the kind of drops seen in the markets in the last few days, even assets like gold, oil and grain are less appealing. That opens up a lot of downside risk. But, add to the equation fundamentals like world demand and the growing potential for a short crop this year, and that downside risk is balanced out.
"Anytime you've got investors fleeing from assets -- and grain is an asset these traders trade in -- the grains are susceptible to downside," McNew adds. "I think the underlying fundamentals are there that they can continue to support prices where they're at."
Assuming those factors will continue to pull at one another, essentially balancing out, McNew says there are a few factors to watch both in the short- and long-term. First, next week's USDA crop production and world supply/demand reports will have some major influence on the direction the grains take in the days and possibly weeks following. Though recent reports from USDA and private forecasters haven't shown a lot of losses, farmers speculate the crop's going to come up well short of the latest estimates. And, demand has shuffled a bit recently, too, McNew says.
"Certainly, the trade has to bite into some of those [USDA crop production and stocks] numbers. Last year is also fresh on our minds; we went through summer thinking we had a certain-sized crop and when we got out there, we didn't," McNew says. "There's a lot of skeptcisim right now. I don't remember so much uncmcertainty about the baseline numbers. I think there's a lot of uncertainty about the true acreage number. USDA came out with such a shocker with its June report and a lot of people said 'Are you kidding me?'"
Current crop estimates that aren't showing much yield drag despite recent dry, hot weather will eventually change, and that's more reason to think there's still some gas in the tank for the bulls in the grains. More farmers, like Michael Lewis, who farms near Bayard in west-central Iowa, are starting to factor in the damaging weather into their own crop estimates.
"Corn looks great from the road, but you can tell that really hot spell affected pollination some," Lewis says. "Some kernels didn't fill and ear size is down from last year. We averaged 173 [bushels per acre] last year and we are hoping to be in the 160s."
So, what's the key action here? Don't get pulled into the wild daily swings in the grain trade, remember that prices are still largely at profitable levels, and stick to your marketing guns for now, McNew says.
"If I'm a farmer -- and I think this is why we see the gyrations every day -- I want to stay focused on the long-term fundamentals here," he says. "Our clients have got positions on and are looking to toe the line here and see what happens. Don't get caught in the hysteria that the spec traders are fueling right now."