When Tommy Grisafi of Advance Trading looks at the outlook for grain and soy prices, the view looks pretty bearish.
In Argentina, farmers could soon unload billions of dollars in stored crops as a new president prepares to take office. Here in the U.S., growers are filling their bins with the third-largest corn crop on record. Meanwhile, U.S. ag exports are slowing, due to a strong dollar and challenges in the global economy.
“The American farmer needs to learn how to market grain under the cost of production,” Grisafi said on U.S. Farm Report. “I’m not happy to say those words. This is just a reality. And yes, the farmer is holding a lot of ’15 crop.”
It’s a tough place to be in December, as producers begin planning for spring planting. “They’re buying seed right now and prepaying for it so they can go produce the ’16 crop,” he said. “They are becoming—and getting ready to become—long corn again, and so are our friends in South America.”
Watch the U.S. Farm Report segment here:
To Grisafi and Dustin Johnson of EHedger, also speaking on U.S. Farm Report, that’s a strategy with significant risk right now.
“The farmer’s holding on to the largest spec positions in the world right now,” Johnson said. “Storing grain, waiting for the price to go higher—whether or not that’s the right answer is to be seen, but so far a laissez-faire approach to marketing has not been the right answer. We have to start thinking that maybe these are the prices that are here to say—and what are we going to do about it? Are we going to continue to pay storage cost to get that increase in price? Or are we going to think about what is the right answer for my business going forward?”
What makes Johnson feel so bearish? Argentina, for one.
“You’re going to see an increase in acreage next year, especially on the corn side (in Argentina), depending on (what happens with tariffs). That’s one more competitor we’re going to have again for our corn exports,” he said. “We’re no longer the low-cost producer around the world, and (you can’t say that) ‘this price of $3.60, $3.70 corn is too cheap.’ I think it’s relative, and I think (prices could) be a lot longer at that level, barring some other weather event.”
Watch the "Markets Now" segment from U.S. Farm Report:
What can farmers do? Grisafi recommends that producers focus on the basics.
“It’s been 560 days since front-month corn’s traded $5 and it could be another 560 days. It could just be 60 days,” Grisafi said, adding: “My advice for the American farmer is to buy those inputs right, work out those land rents, and let the market do its own on going back to higher prices.”