In the 36 years I’ve been working with farmers, I have finally figured out what most crop producers want each year: They want a big crop and a big price. But that’s rarely happened. That’s because farmers had high prices when they had poor crops (or they were already sold out) or they had large crops and low prices.
“Will you use those seasonal patterns to make cash and new-crop sale recommendations after this year? It did not work real good in 2010.” That was the question and comment from a farmer in western Iowa.
I had to admit to the farmer that 2010 was a very unusual, counter-seasonal marketing year.
How can you have a market plan that works for you when commodity funds can run prices dramatically higher than they should go and then lower than you would imagine?
Like this year when corn futures dropped to $3.20 a bushel in June and then rallied sharply higher into harvest.” This was the question and comment from a frustrated Minnesota farmer. This producer had a lot of corn hedges and was looking at a 90¢ under-harvest basis. I did not have a simple answer to his complex question but rather an overall approach that I use with my customers.
This question was asked by a farmer at a grower meeting in Quincy, Illinois: Can the grain markets keep moving higher right into harvest, when the rest of the U.S. economy is moving lower?
Here was my short answer: The U.S. grain markets respond more to international grain fundamentals than ever before. And as long as China keeps buying, odds are good grain prices will stay strong.
The combination this year of record demand from China and the worst drought in 1,000 years in Russia has dramatically changed the global grain fundamentals. As a result, wheat futures soared by over $4 per bushel from late June into early August. Russia embargoed grain exports. (This is an ironic twist that Russia embargoes grain exports 30 years after the U.S. put an export embargo in place against Russia.) And U.S. farmers have the opportunity to forward-sell $7 wheat for delivery right off the combine in 2011.