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Grain Angles: Keep a wider view on markets
<i>Originally published in the June 26, 2009, print edition.</i>
It is human nature to look out one’s window and think that the world is similar to what we see in our own back yard. The same thing is true in the grain markets.
During the growing season, we tend to look at the crops growing in our communities and think that they are representative of the crops around the world. The tendency is to think that if the crops we see are under stress that the markets should go up.
Conversely, if the crops look great, the markets should trade lower. This view of the markets can lead to frustration and questions about market manipulation.
This short-sighted view does not take into consideration that there are millions of acres of crops grown all around the world and they all experience different growing conditions. It also does not take into consideration that the investment community may look at commodities differently than the end-users.
Macro- and micro-economic factors also have a driving impact on the perceived value of commodities. One must remember that the markets are a reflection of all the participants’ information and opinions. The marketplace brings all of this together and a value is established by the give-and-take of the buyers and the sellers.
All market participants will be focused on the U.S. Department of Agriculture June 30 acreage and stocks report. Most traders are expecting a lower corn planted acreage and a higher soybean planted acreage.
Informa Economics is projecting that the USDA will see 83.111 million acres of corn planted in the United States. This would be below the March estimate of 85 million acres and last year’s acreage of 86 million. Informa is projecting that the USDA will see 78.869 million acres of soybeans planted. This would be higher than the March estimate of 76 million acres and last year’s acreage of 75.7 million acres.
One must assume that this information has already been priced into the market price. The market is an accumulation of what the participants are expecting to happen in the future. The big moves that come from reports like these come when there are surprises.
One would expect little movement in the price, if the reports come out as expected.
The markets are telling us that the crops have been planted and that some of the risk premium that had been factored into the price has needed to come out of the price. This is reflected in the fact that corn has lost $0.50 and soybeans have lost $1 over the last two weeks.
One must take caution in assuming that this is entirely due to the fundamentals of the grain markets. Many in the investment community are taking note of the value of crude oil, the U.S. dollar and interest rates. All of this information and opinions are reflected in the price of grain.
What matters most to our grain production operations is what we do with the market information. We have had opportunities to sell old crop grain at significantly higher prices than the harvest lows. We have also had opportunities to price new crop grain at profitable levels, even with the increased cost of production.
This has given the grain producer a prime opportunity to make some sound business decisions, during a volatile climate. Sound marketing plans and execution will be paramount as we move through the next couple of cropping seasons. Having sound enterprise analysis makes it much easier to work the “grain angle”.
Grain Angles is written by Tom Neher, AgStar Financial Services vice president of agribusiness and grain specialist from Rochester, Minn.
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