The potential for severe price swings is always with us. We’re now witnessing the impact of Friday’s USDA report. Nobody knows what the next bombshell will be or what day of the week it will arrive. That’s okay. What’s important is to know that one will come and be prepared for it.
Published on: 10:19AM Oct 11, 2010
Friday’s report showed once again that volatility and uncertainty are ever present in the markets. It really illustrates how futile it is to try to predict what the market might do. That's why it's so important to be prepared for whatever might happen. With structure and discipline built into your marketing, you would not be stressed over what to do next. You wouldn’t be worried about where the price of corn will go this week or next month.
Years back, we wrote the $12 Corn Special Report to highlight the ramifications of volatility as well as the need to be prepared for it. Nothing fundamentally has changed since the report came out. It’s as important as ever for you to have strategies in place for even the most extreme price scenarios. You can know what you will do if the market goes up a little, or if it goes up a lot. Know what you’ll do if the market goes down a little or goes down a lot. And know what you will do ahead of news like Friday's. If you'd like to read the $12 Corn Report, you can request a free copy by clicking here.
Today, the uncertainty is even greater than it was on Friday before the report. We've now dropped the corn carryover to below a billion bushels, yield forecasts have been slashed to 155.8 bushels per acre, and the stock-to-use ratio is down to 6.7. That's all very bullish. A fundamentalist could take this information and easily forecast substantially higher prices. Yet, most major market tops are made on bullish news, and we already have corn prices approaching 6.00. You really have to question whether the USDA isn't being overly influenced by the early harvested corn yields. From our perspective, for every acre out there that there is a disappointing yield, there is another acre out there that has a record yield. You have to question whether the 155.8 number isn't the lowest number we're going to see. To add even more uncertainty, the historical pattern shows that when the USDA drops the yield forecast in October, they do it again in November. The markets are already anticipating that to some degree. So as usual, you can go on all day long, listing bullish and bearish reasons and getting more and more confused.
What isn't uncertain is that this bullish move offers some excellent pricing opportunities, and at these price levels, even those of you that may have disappointing yields are still looking at pretty attractive per-acre revenue numbers. Don't let this rally get away from you and miss out on the opportunity it presents. If you want to be bullish and let it run, go for it. Just be sure to follow the rally very closely with trigger points to get sold the minute it starts to falter. Spread out your sales, don't put all your eggs in one basket, and work for a good high average price. Don't curse the volatility, embrace the opportunity it is presenting.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at [email protected].
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