Outlook Today

The holiday parties are over and many of us have already broken most of our New Year’s resolutions. It’s time to get down to the basics of developing marketing plans for 2012 and 2013. I have to tell you that now, more than ever, there is serious risk potential in front of us.

I assume most producers are in rather good financial shape right now. The strong prices we’ve had from 2007 through today have helped to stabilize the bottom line. The problem is that just about every item used to produce grain has increased the cost of production. I sense that many are also increasing living costs.

Producers are fixed on $7 to $8 corn and $13 to $15 soybeans, and they have no plan in place for the downside. A two-season price action close to or below the cost of production on fall lows would put a serious financial dent in everyone’s ability to weather the bearish storm.

I have written it in the past and you will read it again today: I’m proud to be a bear! While there are times that bears have to hibernate, it is getting very close to a time when bears can feast on those fattened-up bulls.
 

It appears many producers are putting grain in the bin very aggressively in the expectation of firmer prices next summer. I see a risk developing--we get the planted acres and yield moves back to trend line; Dec 2012 could move below $5 before the September supply/demand report high.  

Read more of Bob's thoughts on marketing in the December issue of Farm Journal.

See Bob's previous Farm Journal Outlook columns.

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE "RISK DISCLOSURE STATEMENT" AND "OPTION DISCLOSURE STATEMENT" AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2011.

There are two opposite opinions floating around about the health of the U.S. economy.

The first opinion, shared by the current administration, mainstream economists, Wall Street and most business owners, is that we are merely in the bearish portion of a normal business cycle. With enough fiscal and monetary stimulation and the rich paying their fair share of taxes, the economy will quickly move back to its hay days.

The opposite opinion suggests the game is almost over. After decades of living beyond our means, the bank account is empty and the bill is due! While there is some difference over how long it is going to take, in general there is a common agreement that dark economic times are ahead for the bulls.

This type of doomsday discussion is not new, but people are starting to notice that the economy is not bouncing back like it has in the past. Equity in housing and retirement plans is dropping, the cost of living is going up and Washington seems clueless as to how to fix it.

People who are much smarter than me are trying to figure out which opinion is correct. All I can tell you is, the years ahead will be violent—which makes concentrating on the bottom line more important than ever.
 

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE "RISK DISCLOSURE STATEMENT" AND "OPTION DISCLOSURE STATEMENT" AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2011.
 

Why is there so much gloom and doom in the grain marketplace?

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2011.

Let me remind you of some basic elements about agriculture marketing that I’ve come to believe are bedrock assumptions when it comes to understanding long-term price patterns:

1. The best cure for high prices is high prices. When prices get too high, they destroy demand and stimulate production both domestically and internationally.

2. Short crops have long tails. This means we normally see a high price early on confirmation of a supply reduction, which leads to demand rationing and a subsequent increase in production during the next production year.

3. Bulls and bears always get fed, but hogs get slaughtered. If you don’t understand this, you might as well get out of the market.

4. The rule of unintended consequences. The market often reacts in an unexpected way that surprises us. Many times, it acts in a way that disappoints the maximum number of people. In this case, producers will be putting cash corn and soybeans in the bin with no carry in the hope of seeing sharply higher prices the following summer.

While these principles are well known, we seem to want more complex answers to the basic supply-and-demand equation. I believe commodities are produced in an economic structure that will not allow excessive profits to be realized for more than two marketing seasons. While this has been proven to be a little incorrect because of ethanol and the China growth function in the corn market, I believe it will eventually be vindicated.

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2011.