The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Bob Utterback has more than 26 years of experience and offers producers a disciplined approach to marketing.
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.
No comments have been posted to this Blog Post