How To Market in Uncertain Times

October 25, 2018 02:30 PM
 
This has been an unprecedented year with the U.S. tariffs and the Chinese retaliation. What are your expectations for the resolution?

Q: This has been an unprecedented year with the U.S. tariffs and the Chinese retaliation. What are your expectations for the resolution? Producers are marketing 2018 production, but with so much uncertainty, how should they plan for 2019 crop marketing?

Reimage Your Marketing Strategies 

Richard BrockRichard Brock, President, Brock Associates
rabrock@brockreport.com

The coming year is a year of great opportunity for farmers. The news is almost all negative—but that’s what makes market bottoms!

The NAFTA and tariff battles have been tough but will be a long-term positive. With NAFTA settled, exports of grain to Mexico are running at record pace. We need a settlement with China. It will happen and sooner than most expect. They need soybeans and they plan to go to a 10% ethanol blend for autos. As of Sept. 27, U.S. soybean export commitments to China are down 88% from a year ago, but commitments to “unknown” destination were up 15%, leaving total commitments to all destinations down only 13%. 

The news will only get better from here. Long-term cycles in corn and soybeans are making a bottom. Aggressive forward selling strategies worked well for producers starting in 2012. That’s not what should be done in 2019. 

An old rule of thumb is to, “Never store a short crop. Always store a big crop.” This is a big one. Corn and soybean prices are headed higher. This past May farmers had a great opportunity to forward sell corn and soybeans at profitable levels. Move slowly on selling now. Marketing strategies that worked in the past five years will not work this coming year.  

 

Protect Next Year’s Crop Now

Tommy GrisafiTommy Grisafi, Commodity Risk Management Adviser, Advance Trading
tgrisafi@advance-trading.com 

We know President Donald Trump likes to shoot from the hip, as he doesn’t telegraph his decisions. Every year in agriculture presents a unique challenge, and with that comes opportunity. I am most excited about black swans such as production issues in South America or finding new innovation through domestic demand. Innovation is the mother of invention. 

While there is pain currently, these prices might lead to new sources of demand. America will adapt to the lack of Chinese demand. 

It is never too early to begin marketing next year’s crop. With the carry in the market, there is opportunity to protect next year’s crop at prices that would seem to be average futures prices but below average basis prices. 

The real sore spot is the basis. We notice the difference in basis especially in the northwestern growing region. My biggest fear for 2019 is the financial strain on growers. Next year’s challenge will be how susceptible one’s balance sheet is to tighter margins.

Next year will leave less room for error. The vulnerabilities that hurt the dairy industry are now being reflected on soybean growers. But, regardless of price, we are in the bushel business and nobody is better at producing bushels than American farmers. 
 

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