The grain markets have staged a counter-seasonal rally as harvest delays have challenged the entire industry. Many end-users have expected a large crop to enter the pipeline and supply much-needed inventory in a timely fashion.
Many grain producers were expecting the harvest to transpire in a manner that maximum production and high quality could be captured. Contracts for harvest delivery are being challenged and emotions run high with all parties.
Other factors, such as the weakening U.S. dollar, have encouraged the investment community to re-invest in commodities such as grain, crude oil and foreign currencies. This investment money is welcome if it is on the side of the equation that one personally resides.
If you are an owner of the product and the investor comes in to buy, you like the help. If you are a competitor for the product, such as a livestock feeder or ethanol producer, their investments are not nearly as welcome. The sheer financial power these investors can exert on a small market like commodities is daunting. The value of a commodity is determined by the number of people interested in owning it, and the emotional component drives the magnitude of the price movement.
Given this market environment, some great marketing opportunities are present for grain producers. 2009 corn prices have rallied $0.90 to $1 per bushel from the pre-harvest low and soybeans have rallied $1.20. This clearly is risk premium that has been added into the price.
When one works on projections for the 2010 crop year, profitable opportunities have now re-appeared. Given the potential financial challenges ahead for grain producers, one must give serious consideration to locking in land, agronomy costs and grain sales to capture profitable opportunities.
In my last column, I shared the story of my Grandpa telling me to work on hitting singles and doubles. This is such an opportunity.
I was visiting with a friend of mine who is struggling to bring his crops in this season. I shared my thoughts on the markets with him and there was a long silence on the other end of the telephone. I asked him if he was still there.
After clearing his throat he said, “That all sounds good, but it is not that easy.”
He shared that he had made, what he thought were some good marketing decisions this summer and now the discounts that he has to take in the form of dockage, shrink and drying costs are turning those decisions into nightmares.
He was absolutely correct, it is not easy.
After a long conversation and more listening from me than talking, he said, “Just think how I would feel if I had made my sales a month ago and had to take these discounts today?”
His point was well taken. As we ended our conversation, he asked me what I thought about making some 2010 sales. I was quiet for a moment and then reminded him that no one ever went broke taking a profit. As I hung up the telephone and watched the baseball game on television, I kept thinking about hitting singles and doubles.
Grain marketing has never been easy, but base hits produce runs. Let us all keep working on our batting averages.
Grain Angles is written by Tom Neher, AgStar Financial Services vice president of agribusiness and grain specialist from Rochester, Minn.