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SF Blog: Tracking the Trackers of Farm Markets
The other day, a guy said to me that we no longer farm like we did 50 years ago, so why do we still try to market our grain like we did 50 years ago.
He was referring to the fact that, still, a lot of farmers sell their crops off of the combine vs. developing a sturdier risk-management plan. Furthermore, he was sure to point out that farmers who try to guess the direction of the market based upon what’s going on in the field out their kitchen window are delusional.
Which brings me to my point. Tracking the farm markets, nowadays, is no small feat. In the olden days, when the U.S. was the major shareholder of the corn and soybean market, a local rain event or hot/dry spell would have meant a lot in moving local prices.
And it still does impact an individual farmer’s crop size.
But, as the conversation mentioned above proceeded, the guy referenced the global market concept. For instance, so many more countries are producing corn and soybeans that the trade has a much broader focus for supply/demand factors.
I would take it a step further. Not only do you have more ‘country players,' but also the list of market trackers has grown substantially.
For example, now that the U.S. and other countries are involved with ethanol and biodiesel production, the trade tracks the crude oil market.
Because there are currency wars going on around the globe, the trade weighs heavily on the movement of the U.S. dollar.
Traders tell me, all the time, that when they start tracking the morning markets, they immediately look at how the Dalian Exchange traded soybeans overnight in Asia.
Outside investment into the ag sector has nearly turned the markets on their heads in recent times. So the trade tracks the flow of money from index and hedge funds in and out of ag commodities.
And the list doesn’t stop there. Are you keeping score at home?
Palm oil sets the baseline for the value of edible oils. So the soybean oil market and, for that matter, its raw product (soybean) market get yanked around by the global production of palm oil.
Ag policy in the U.S. and around the world can shake up farmers’ crop-production decisions. For example, China’s current decision to destock corn reserves and back off corn subsidies will allow for more domestic production of soybeans.
Well, those changes will most likely slow U.S. soybean exports to its biggest customer: China.
A reformed former Soviet Union region, abandoning Soviet-style cooperatives, will fuel self-determined farmers to produce three times the amount of wheat on one third less ground, some market watchers say. That part of the world has high interest rates and less grain storage. As a result, those farmers are active sellers at harvesttime. The world is flush with wheat even before the U.S. gets its crop out of the field.
Where am I going with all of this? Crazy, if I don’t watch my ways.
Seriously, farmers are being urged, and rightfully so, to put together a grain marketing plan. Call it a risk-management plan, if you will.
But, the basket of market-moving factors has grown like a swollen bite from a bumblebee.
It might be worth asking yourself if you have time to aggregate all of this information. If not, relinquish the duties to a new member of your marketing team.