Macro Factors Could Cloud Bullish Prices

October 5, 2011 09:10 AM

Smart marketers anticipate potential clouds on the horizon, which includes keeping a close eye on the macro factors. "Agriculture does not think about macro factors, but they can have a big influence on prices," says Frayne Olson, an ag economist at North Dakota State University.

One big factor is the U.S. dollar. The weakness of the U.S. dollar in the past has made U.S. exports—both grain and livestock—attractive to foreign buyers. That could change, though, if the U.S. dollar strengthens, which Olson gives a 40% to 50% chance of doing. In light of the weak world economy, that could mean $7 corn becomes $9 corn to global buyers.

"If the dollar strengthens, export demand falls and prices drop, farmers need to be prepared to quickly sell the 2011 crop," he says.

Moreover, "if you see some spikes [on the 2011 crop], take advantage of them." He adds that farmers are probably sick of the word, but volatility will remain in play in a major way.

Olson says that farmers have sold a significant amount of the 2011 crop, and with harvest basis softening, he thinks some selling opportunities might present themselves this coming winter. But again, when prices drop, farmers need to be prepared to make some sales. "The worst-case scenario is that Europe collapses."

For 2012, Olson does not recommend being more than 10% to 15% sold on corn because he thinks more pricing opportunities will present themselves this coming spring when corn has to bid against soybeans, wheat and cotton for acres, and that means prices might heat up. Furthermore, there is more than a $1 spread between 2011 and 2012 prices right now, Olson says.

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