2016: A Review of the Marketing Year
Merry Christmas! Around the holidays, it’s usually a good time to review where we've been this year, and where we are going. As we started 2016, we had what we thought were adequate supplies of all grains — wheat, corn, and soybeans. As it turned out, we finished the year with less than 200 mb of soybeans on hand, as soybean exports to China once again gobbled up a pretty good crop yield in 2015. So stocks of wheat and corn were relatively high, but soybeans were relatively tight.
To start the year, we knew that stocks weren’t likely to run out, and prices knew it as we were at or near the bottom of historical price ranges, at least in the modern world since we spiked markets higher in 2006. So the market was low, and the Pro Ag advice when the market is low is to buy, buy, buy! We started out giving that advice as prices were dismal to start 2016. And as is typical following a good crop year, in 2015 prices stayed dismal until we started focusing on the 2016 crop year, and all the possibilities that go with it. Next year (any year) can bring all the possibilities that come with a new year — either a bumper crop, or a disaster crop, or anything in between. Once the market started focusing on 2016 in the U.S., prices started to rise.
Adding fuel to the fire was a South American crop that turned out much worse than expected, and we discovered their crop problems after the growing season was pretty much over, so prices increased significantly. We added dollars to the wheat, soybean, and corn price from February to June, and farmers had the opportunity to market grains once again. This was especially true in soybeans, as they rallied about $3 from low to high.
In June, we made sales of grains, but none more aggressively than soybeans. It was also an opportunity to sell corn, but if you didn’t sell on the way up, the market didn’t have the type of recoveries it typically has to allow you to sell on the way down. Instead, corn dropped so fast with virtually no recoveries that very few corn sales were made if they weren’t made on the way up in June.
Wheat was a different animal, as by June it was apparent that we’d have a good winter wheat crop due to spring rains in HRW wheat country that were perfect for growing winter wheat. We ended up with a record-shattering winter wheat crop, and prices tried to follow corn and soybeans higher, but didn’t muster much of a rally with the crop looking so good in the field.
Then, as the growing season of corn and soybeans unfolded, it became apparent that not only was 2016 not going to be a drought year (as many predicted), but it also was a nearly perfect growing season. Crop yield models rose for most of the season, and we ended up with what was a record-shattering crop yield in both corn and soybeans. In fact, soybeans shattered the previous record-large yield by nearly 10% — a crop for the record books, indeed!
Projected ending stocks of wheat, corn, and soybeans are all burdensome due to a record-large yielding crop in all three categories. But so far, export shipments and sales of all three commodities are strong (especially soybeans), with China buying soybeans at a pace that makes it look like it doesn’t matter how much the U.S. produces — China can buy it all anyway! Is that true, or just another market misperception?
We also elected a new president in November, and the surprise winner Donald Trump has propelled some markets to move significantly — interest rates higher (helped by the federal reserve who raised interest rates for the first time in many months in December, as Mr. Trump predicted during the campaign). Stock markets have soared in the meantime, and the U.S. dollar has soared as well.
We leave 2016 in much the same condition as we left 2015. Prices relatively dismal (especially for corn and wheat), large supplies, and most market analysts saying there is little chance for markets to go higher.
But hope springs eternal, and while the market may not move much into March, once the new crop year begins (with the focus typically shifting to 2017 around mid- to late-March), anything can happen again. Pro Ag expects that farmers will not make significant sales again until sometime between April and July, as it will take time to work through the current supplies on hand. But as the old saying goes, the best cure for low prices is low prices. And as another production year comes around, less money is spent on a low-priced commodity, demand picks up, and price is the lever that balances supply and demand again. However, it takes time, so patience is a virtue!
Here’s hoping that 2017 brings us more opportunities to market grains profitably, and that sometime in late spring and early summer we have the opportunity to sell grains for a profit — and that we have the wisdom to sell something at that time!
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See progressiveag.com for rankings.
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