Chip Flory: Don’t Make This Grain Marketing Mistake

This is the time of year market analysis takes on a single-issue focus: crop size. Don’t let it happen to you.
This is the time of year market analysis takes on a single-issue focus: crop size. Don’t let it happen to you.
(Farm Journal)

This is the time of year market analysis takes on a single-issue focus: crop size. Some argue the single focus is yield. However, if an upcoming Crop Production report features a lower yield but a bigger crop, due to an increase in (for example) soybean acres, the market will be quick to shift its focus to total bushels rather than bushels per acre.

Don’t let it happen. It’s dangerous to a marketing plan, especially when prices already offer most growers an at-tractive profit on corn and soybeans. 

What happens too often during harvest is marketers get locked in and stubborn on crop expectations. It might not be a specific crop size, but smaller or bigger.

If expectations are for a crop smaller than USDA estimates, price expectations are higher — even if prices are al-ready high. It’s true, identifying the most accurate estimate of crop size is the big-ticket item during harvest, but the several sideshows happening can offset any change to the supply-side of the balance sheet. For example:

  1. Commodity trends. Specifically, I’m talking energies and crude oil. These markets are loaded with supply-side un-certainties due to war in Ukraine and “green energy” initiatives that seem to be cutting investment in the fossil-fuel industry. Even research for future internal-combustion engines seems to have been stifled by electric-vehicle battery development. 
  2. Currency trends. The U.S. dollar index was at 20-year highs in early September and expected higher U.S. interest rates will keep demand for dollar-denominated investments at a high level. The strong dollar makes U.S. ag products more expensive around the globe.
  3. Black swans. These unpredictable (and numerous) issues have major impacts on supply or demand.
  4. That “other supply.” Brazil’s soybean acreage is expected to increase 4% to 4.5% for the 2022/23 crop. The 2021/22 Brazilian soybean crop hit 126 million metric tons (MMT), which was down nearly 10% from the previous year. The La Niña weather pattern that took a bite from last year’s crop is still in place, but analysts expect more soybean acres and a yield recovery to result in a crop size of 149 MMT to 153 MMT — that’s up 18% to 21% from last year. If the crop is 25 MMT bigger than last year, that’s nearly 920 million more soybean bushels for the world to absorb.

PROFIT PER ACRE

There are other issues to consider, but those are examples of why your analysis of marketing opportunities cannot become single focused. Supply-side rallies in corn and soybeans typically end long before the size of crops is settled, which is why you cannot become more bullish as prices rise.

High prices also shift demand and carry-over levels that were once considered tight to become adequate. That shift is often enough to turn price trends.

Don’t become single focused, unless that focus is on profits per acre. Strong potential profits represent huge risk and a great opportunity to make some sales.  

Listen to Chip Flory on AgriTalk PM:


 

 

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