Marketing Outlook for 2017: 'Best Cure for Low Prices Is Low Prices'
Happy New Year! As I write this column today, grain markets are sharply higher led by none other than the wheat market, which is up 15¢. Wheat was anything but the star performer in 2016, as wheat prices never did get high enough to look like any really great sales. If we could just keep rallying 15¢ a day for a few months, things would be looking a whole lot better!
Wheat prices are plenty low now, especially the winter wheat varieties, where there are plentiful supplies after the record-shattering yield in 2017. Burdensome supplies mean relatively low prices. But the old saying is “the best cure for low prices is low prices,” so we have the cure for our problem in wheat on the horizon. It will take time. The next bit of news we get is about winter wheat-planted acreage in the January 12 USDA report, and that should show that low prices led producers to plant less wheat acreage. The same result occurred last year, but the record-large yield offset the decline in acreage. With another acreage decline this year, at least there is a chance that the burdensome stocks can be reduced somewhat.
The production year could be a lot different, though, in 2017 than in 2016, when rains came at the perfect time for winter wheat crops to flourish. It is unlikely we’ll have another record production year in 2017, so the outlook could be better once we focus on the 2017 crop.
The same could be said about corn and soybeans. We had record-large yields of both crops in 2016, with soybeans shattering the previous record-large yield by about 10%. That is a huge accomplishment for soybean producers, and also an event unlikely to be repeated soon. Corn prices are relatively low, with most expecting a 4- to 5-million-acre drop in corn acreage in 2017 due to the low prices of corn relative to soybeans. That will help the corn fundamentals, and once again, the saying “low prices cure low prices” could be true in corn as well as in wheat.
Soybeans so far seem to be the shining star for demand, as China once again is importing soybeans at a torrid pace to start the marketing year. We shipped another 62.8 mb of soybeans out of the country last week, as we continue a pace that is impressive to say the least. I’ve said it before and I’ll say it again: Is it possible that no matter what the U.S. produces for soybeans, that China will buy it all anyway? Even in a record-shattering yield by 10%, could China buy all we produced by the end of the year?
Exports of soybeans have been outstanding, but even corn and wheat are impressive so far in the 2016-17 marketing year. Last week we shipped 38.2 mb of corn exports, and 19.1 mb of wheat, which are also good numbers. Could it be that the U.S. will finally have an impressive export lineup for the big three commodities this year?
So while we have mostly poor prices for ag commodities right now, hope springs eternal. Like we mentioned last week, while the market may not move much into March, once the new crop year begins (with the focus typically shifting to 2017 about mid- to late March), then 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. For 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. But it takes time, so patience is a virtue.
Here’s hoping that 2017 brings prosperity to grain producers, with opportunity to market grains profitably. The best chance of that is probably in late spring and early summer.
NOTE: Pro Ag is sponsoring a 101 Marketing Seminar on Jan. 11, 9:30 am to 4 pm in Fargo. Progressive Ag will present its "Intro to Marketing" using futures and options. If you have never used them or if you are seasoned and need a refresher to the finer points in using these pricing tools, this session is for you. Seating is limited to the first 50 people. Lunch is included. RSVP attendance to 1-800-450-1404.
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings.
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